author: Seawei-l:

text:
    I. J. Rosenberg, Transferee, Bankers Security Company, Transferor, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 78062, 78410.
    Promulgated May 17, 1935.

      E. O. Pommerenmg, Esq., for the petitioner.

      J. K. Johnston, Esq., for the respondent.
   OPINION.

Seawei-l:

This is a motion by respondent to dismiss this proceeding on the grounds that the Board of Tax Appeals is without jurisdiction to hear and determine the same. The facts are not in dispute.

On September 11, 1934, the Commissioner of Internal Revenue mailed, in the manner provided by law, a notice to the petitioner reading as follows:

IT:E: Aj
COP-21695-90D
SEP 11 1934.
Mr. I. J. ROSENBERG,
Transferee, 2477 North Qramt Boulevard, Milwaukee, Wisconsin.
Sir: In accordance with the provisions of Sections 270(a) and 280 of the Revenue Act of 1926, and Sections 273(a) and 311 of the Revenue Act of 1928, there has been assessed against you a deficiency in taxes, penalties and interest amounting to $108,594.50, due from the Banters Security Company, Milwaukee, Wisconsin, for the years 1925 to 1928, inclusive, the details of which are set forth in the statement attached.
This assessment represents your liability as transferee of the assets of the Bankers Security Company, Milwaukee, Wisconsin.
In accordance with Section 274(a) of the Revenue Act of 1926 and Section 272(a) of the Revenue Act of 1928, as amended by Section 501 of the Revenue Act of 1934, notice is hereby given of the deficiency mentioned. Within ninety days (Not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day), from the date of the mailing of this letter, you. may file a petition with the United States Board of Tax Appeals for a redeter-mination of the deficiency.
[Signature]
Enclosure:
Statement.

On December 10,1934, the Clerk of the Board received a telegram reading as follows:

BU MILWAUKEE WISC 239p Dec 10 1934
U S BOARD TAX APPEALS
REPORT DELIVERY LOCK BOX 485
WASHINGTON DO
EILE THIS AS TENTATIVE PETITION I J ROSENBERG TRANSEEREE IT:E: AJ COP 21695
435p E C POMMERENING

The Clerk of the Board stamped the telegram as received December 10, 1934, marked it “Incomplete” and filed it as petitions are filed with the Board, giving it the number 78062.

On December 19, 1934, a Division of the Board entered the usual order in cases where the petition filed is considered incomplete and the filing fee is not paid, as follows:

The petitioner instituted this proceeding by the filing of one copy of a statement wherein it was alleged that the Commissioner had erred in his determina-tlon of a deficiency against tfie said petitioner. Tfie Board was unable to make service of a copy of said petition upon tfie Commissioner so tfiat fie migfit answer, as required by tfie Rules of Practice, a copy of whicfi is now furnished to said petitioner; and said petitioner having failed to pay to the Board tfie filing fee of Ten Dollars ($10) as authorized by Section 904 of tfie Revenue Act of 1926 and as required by Rule 8 of tfie Board’s Rules of Practice, it is
Obdeked, tfiat tfie petitioner prepare and file an original and four copies of a proper petition in accordance with tfie Board’s Rules of Practice, and pay the fee of Ten Dollars for the filing of said petition, or show cause, if any there be, on or before January 30, 1935, at 9:30 a. m., why this proceeding should not be dismissed for failure properly to prosecute.

On January 25, 1935, the Clerk of the Board received through the mail and filed as No. 78410, a petition captioned “ I. J. Rosenberg, Transferee, Bankers Security Co., Transferor, Petitioner, v. Commissioner of Internal Revenue, Respondent ”, in which petitioner stated: “ The above named petitioner hereby petitions for a redetermination of the deficiency set forth by the Commissioner of Internal Revenue in his notice of deficiency, Bureau Symbols IT: E: Aj COP 21695-90D, dated September 11, 1934 and as the basis of his proceeding alleges as follows ”.

There follows, inter alia, the statement that “3. A tentative petition was filed herein on December 10, 1934 ”, a statement of the taxes in controversy, allegation of error of the Commissioner, a statement of the alleged facts and prayer for relief, and a copy of the 90-day deficiency notice of the Commissioner copied above, but not the detailed statement referred to therein. The petition is signed by petitioner and sworn to by him and also signed “ E. C. Pom-merening, Counsel for Petitioner.” The filing fee of $10, referred to in the order to show cause, was paid.

On February 20, 1935, the Assistant General Counsel of the Bureau of Internal Revenue filed the motion to dismiss, now and herein being heard, which reads as follows:

Motion to Dismiss
Comes now the respondent by his attorney, Robert H. Jackson, Assistant General Counsel for the Bureau of Internal Revenue, and moves tfiat tfie petition in tfie above entitled proceeding be dismissed and for grounds of motion states:
That under Section 274 (a) of the Revenue Act of 1926 as subsequently amended, the Board of Tax Appeals fias no jurisdiction to entertain tfie appeal since it appears of record tfiat more than 90 days elapsed between the date of tfie mailing of the notice of deficiency (September 11, 1934), and the filing of the above-entitled petition (January 25, 1935).
[Signature]

The jurisdiction of the Board of Tax Appeals is entirely statutory (Clois L. Greene, 2 B. T. A. 148, 149), and one of the requisites, which is not less important than any other specified, is that the taxpayer file with the Board a petition for a redetermination of the deficiency. Section 272 (a) of the Revenue Acts of 1928 and 1932, in part, is as follows:

(a) Petition to Board of Taa¡ Appeals. — If in tlie case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail. Within 60 [now 90 — Revenue Act of 1934— section 501] days after such notice is mailed (not counting 'Sunday as the sixtieth day), the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. * * *

There is here no controversy that the Commissioner determined the deficiency and sent his notice thereof to the taxpayer by registered mail, and that within 90 days thereafter a telegram, as set out above, was sent to the Board and filed with it as an incomplete petition. The particular question here is, Was the telegram “ a petition for a redetermination of the deficiency ” such as is required by the statute % Incidentally, it may be noted the telegram was not signed by the taxpayer and the attorney whose name is signed' to it does not designate himself as attorney or in any other way appearing on the telegram claim authority to represent the taxpayer. It may be further noted that upon the argument of this motion before the Board the same attorney stated: “ The petitioner, I. J. Rosenberg, is at present incarcerated in the State’s prison at Waupun for a violation of the Banking Act of the State of Wisconsin. The son of petitioner came to our office about a week before the time had expired on the 90-day letter. * * * I told him that a petition had to be filed signed by his father. He went to Waupun, * * * and attempted to gee his father, but was not permitted to see his father at that time. He waited and he went again and he was unable to see his father, and waited a little too long, and then sent this telegram.”

From the foregoing, it would seem the taxpayer not only did not himself sign or send the telegram to the Board, but that he knew nothing about it and had not authorized either his son or the attorney to file it for him. Jurisdiction can not be supplied to the Board by a vicarious filing of a petition in behalf of a taxpayer. Percy N. Powers, 20 B. T. A. 753, 755. Respondent, however, does not rest his contention solely upon this ground, but contends and insists that the telegram was not in any case “ a petition for a rede-termination of a deficiency ” required by the statute to be filed in order to supply jurisdiction in the Board to hear and determine the controversy.

In the case of F. O. Statler, 27 B. T. A. 342, relied on by petitioner, the telegram there filed as “ a petition for a redetermination of the deficiency ”, disclosed an “ appeal against assessment ” under the Commissioner’s deficiency notice of a certain date, identified by symbols, amount and years of the deficiencies, and stating the grounds upon which the appeal was made. There was an order entered requiring the petitioner to show cause why the proceeding should not be dismissed for failure to properly prosecute and for failure to pay the filing fee. Petitioner paid the filing fee and filed a proper amended petition. Respondent moved, as here, to dismiss the proceeding. The Board denied respondent’s motion upon the authority of Peruna Co., 11 B. T. A. 1180, and Krueger Broughton Lumber Co., 18 B. T. A. 1270. In the Peruna case respondent had mailed petitioner a 30-day notice on April 12, 1925, and also a deficiency notice on June 12, 1925. Within 60 days after the mailing of the deficiency notice petitioner filed its petition asking a review of “ a proposed additional assessment of income and profits tax for the calendar year 1920 ”, referring to the 30-day instead of the deficiency notice, both of which dealt with the same tax. There was no question that the document filed was “ a petition for a redetermination of the deficiency.” Respondent’s motion to dismiss was denied. In the Krueger Broughton Lumber Go. case an appeal was timely filed, but in some way, not pointed out in the opinion, the Board’s rules of practice were not complied with and the filing fee was not paid. Opportunity was afforded petitioner at once to remedy these defects, which was promptly done within the time allowed.

There is a difference between a defective statement of a cause of action and a statement of a defective cause of action. In the three cases mentioned there may have been a defect in the statement of, but not in the cause of action. Each claimed within the time permitted a redetermination of the Commissioner’s determination of a deficiency. Counsel for petitioner makes the point that the Boárd in its order to show cause dated December 19, 1934, recited that petitioner “ alleged that the Commissioner erred in his determination of a deficiency against petitioner.” This was fro formen, and not actually true and obviously gave the Board no jurisdiction of the proceeding.

The telegram filed for petitioner in this proceeding disclosed no appeal against assessment ” and no request for any redetermination of any deficiency. No interpretation of the telegram can supply such defect. The statute does not purport to give jurisdiction to the Board upon the filing of a tentative “ petition for a redetermination of a deficiency.” If the word tentative had been some word of tautological meaning, it might be treated as mere surplusage and ignored, but it is a word limiting and restricting the meaning of the word petition. As defined in Webster’s Dictionary, tentative means: 1. Of, pertaining to, or based on, a trial or trials; experimental ; as, a tentative theory. 2. Making trial; testing.” It seems to be synonymous with the word provisional used in the sense of a temporary makeshift for the time being. It is as if the taxpayer had said: “File this as a petition (although it is not a petition) until I get ready or until the Board, by a notice to show cause, orders me to file a real petition as required by the statute.” By no fair interpretation can the document be treated as “ a petition for a rede-termination 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 dis-traint or otherwise to collect a deficiency in tax, to give to the taxpayer the notice such as he gave in this case. And thereafter he is prohibited from proceeding for 90 days; and, if a petition for a rede-termination 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. Powers, supra, “ 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.”

The motion to dismiss is allowed.

Reviewed by the Board.


source: Caselaw Access Project

author: Murdock:

license: Public Domain

text:
    Terminal Realty Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 43766, 50762, 60596, 71157.
    Promulgated May 17, 1935.

      A. E. James, Esq., and Bay Garrett, Esq., for tbe petitioner.

      H. D. Thomas, Esq., for the respondent.
   OPINION.

Murdock:

The first question is whether or not the petitioner is entitled to any deductions during the period of the lease on account of depreciation or obsolescence of the physical properties which it owned and leased to the traction companies. The Commissioner has allowed no deductions whatever. He argues that the petitioner is not entitled to any deduction for depreciation because the lessees were required to offset by repairs and replacements any exhaustion, wear and tear which might otherwise result from the use of the property. He relies entirely upon the provision of the lease requiring the lessees to “ maintain ” the “ property in a good and safe condition, equally as good and safe ” as it was at the beginning. He cites A. Wilhelm Co., 6 B. T. A. 1, and Terre Haute Traction & Light Co., 24 B. T. A. 197; affirmed on this point, 67 Fed. (2d) 697.

The statutes provide for a deduction of “a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence ” based upon the cost of the property. The Supreme Court said in United States v. Ludey, 274 U. S. 295, 300-301:

The amount of the allowance for depreciation is the sum which should be set aside for the taxable year, in order that, at the end of the useful life of the plant in the business, the aggregate of the sums set aside will (with the salvage value) suffice to provide an amount equal to the original cost.

Deductions for depreciation are allowed for the purpose of restoring the cost of exhausting property over the period of its use from untaxed earnings derived from its use. The annual allowance is made pursuant to some plan for distributing the total cost of the plant over the period of its usefulness. It is to be “ a reasonable allowance ” with relation to the whole life period of the asset and need not be an exact measure of the actual wearing out of the property in the particular year. Under the “ straight line ” method it may be assumed that depreciation proceeds at some average rate based upon an estimate of the number of years that the property will probably last. Practical judgment based upon experience should be used in making the estimate. The annual allowance may be computed by dividing the cost of the property by the number of years of its estimated life. If the probable salvage value can be estimated, it should be first deducted from cost, but if it can not be reasonably estimated, adjustment may be made for it later. Some later adjustment may also be necessary to make up for errors in the estimate. A reasonable allowance is thus merely the equitable share of the expense of ultimate retirement of the plant assignable to each year.

The provision of the lease upon which the Commissioner relies must be properly interpreted. It required the lessees to maintain the property; that is, it made them responsible for the upkeep, repairs, and replacements which the property might need during the period of the lease. If a part of the property wore out or broke, the lessees were required to make the necessary repairs and replacements. Buildings may be kept in a good and safe condition, equally as good and safe as they were in the beginning, for a limited time only. Experience has taught that at the end of some period of time physical properties will be worn out despite all that can be done to them in the meantime. Proper maintenance may keep them in a condition equally as good and safe as they were in the beginning almost, if not quite, up to the end of their physical life. Indeed, their life ends when they can be maintained in a good and safe condition no longer. The probable physical life of the properties in question was somewhat longer than the period of the lease. No doubt, by proper maintenance, they could be kept throughout the period of the lease in a condition equally as good and safe as they were at the beginning of the lease. Still they were wearing out. In 1930, for example, they were no longer new. They were somewhat deteriorated from age and worn from use. Some depreciation had actually taken place. Their probable future physical life was shorter than it was at the beginning of the lease. The respondent does not contend that the lessees were required to pay cash to the lessors at the end of the lease, or at any other time, to offset this depreciation. It seems clear that the lessees were not required by the terms of the lease to replace at the end of the lease the partially worn out buildings with new ones. Thus the lessor can expect to have returned to it, at the termination of the lease, property having a probable future physical life at that time of only a few years. Must the lessor recover the entire cost of this property through deductions from income from the use of the property during those few remaining years of usefulness, or is it reasonable to spread this cost over the entire period of usefulness of the property, including the period of the lease ? Since the property was actually wearing out during the period of the lease, it seems reasonable to deduct from the annual rental a proportionate part of the cost of the property. Cf. Richmond Belt Railway Co., 13 B. T. A. 1291. If obsolescence were taking place, it is oven more clear that the petitioner should have a deduction. Obviously no provision of the lease would save the petitioner from loss if at the end of the lease the property, though still sturdy physically, were about to become obsolete. In such case the petitioner could recover the cost of its property only through deductions from its income during the period of the lease. The petitioner is entitled to deductions for depreciation, including obsolescence, for the years for which it has claimed deductions in its pleading and to the extent that it has proven facts from which the amount of such deductions can be determined.

The two cases cited by the respondent are distinguishable on their facts from the present case. The A. Wilhelm Co. leased its entire plant and assets as a going concern, subject to its liabilities, for a five-year period, with an option to purchase at a fixed price. The lessee was required to maintain the plant and to pay all costs of new construction. Furthermore-, it was required at the expiration of the lease to return the property to the lessor in the same condition and equal in book value and actual value to its value at the beginning of the lease. A deduction for depreciation was denied the lessor during the term of the lease because “ no allowance could be justified as reasonable under the circumstances.” In the Terre Harnte Electric Go. case the lease was for a period of 999 years, during which time the lessee was to maintain the property. There was to be an appraisal at the beginning, as well as at the termination, of the lease and the value of the lessor’s property at the time the lease was executed was to be restored to it at the time the lease expired. Likewise the case of Atlantic Coast Line Railway Co., 31 B. T. A. 130, is distinguishable from the present case by a difference in the facts. The lease there was for a term of 999 years. The lessees were to maintain the property and at the end of the lease to return it to the lessors in good order and condition, “ ordinary wear and tear excepted.” The lessor’s claim for a deduction for depreciation in that case seems to liaise been an afterthought. The Board disallowed it, stating that any loss which the lessor might expect because of t'he excepted “ ordinary wear and tear” had neither been alleged nor shown.

The next question is to determine from the evidence the amount of the deductions. The proof in regard to the probable physical life of the properties is clear enough and is not seriously assailed by the respondent. The property would probably have no salvage value. Likewise, it is fairly well established that a period of obsolescence began about the beginning of the year 1928. The indications then were that the property would probably lose its usefulness prior to the end of its physical life. However, the period of obsolescence is not so clearly established by the evidence. One witness testified that in 1927 or early in 1928 he became convinced from the rapid decline in business of the traction companies, caused by the increased use of automobiles and trucks, that within ten or fifteen years the terminal facilities would have lost their usefulness. In addition to the testimony of this witness there is evidence of the decline in earnings of some of the companies, evidence of the abandonment of some of the lines, evidence of bankruptcy of some of the companies, and perhaps some other evidence bearing upon the subject. If the opinion of this witness were absolutely binding, then the holding would have to be that the period of obsolescence began at the beginning of 1928 and would end not later than the beginning of 1943. However, some of the other evidence indicates a slightly longer period of obsolescence. The property had been leased until 1946 and the lessees would be liable for the rental until that time. Although there were some changes in some of the companies, there was no evidence of any of them having defaulted up to the time of trial. Taking into consideration all of the evidence, we hold that the period of obsolescence began in 1928 and will end in 1946. Thus one eighteenth of the cost of the property depreciated to January 1, 1928, should be allowed as a deduction for exhaustion, wear, and tear, including obsolescence for each of the years 1928, 1929, and 1930.

The next question is whether or not the portion of the rental fixed at the amount necessary to retire the preferred stock is income to the petitioner or a capital contribution. The petitioner claims that this item was not truly rental and was not income, but instead was a capital contribution representing the payments which the lessees were making for their common stock. The lessees were also the common stockholders. They paid no cash for stock in 1923. The petitioner points to statements in the articles of incorporation and in the resolution accepting the lease relating to how the value of the common stock was to be paid into capital account, to the fact that the total-paid was apportioned and billed to the lessee companies not in proportion to their use of the terminal facilities, but in proportion to the amount of common stock held by each lessee, and to the method of accounting for these items employed by the lessor and lessee companies. It therefore argues that, despite the name which was given to the item, the parties have shown by their action that it was capital and not income to the lessor. It says that the case of Paducah & Illinois R.R. Co., 2 B. T. A. 1001 is in point and controlling. However, the facts in that case were materially different. The agreement in that case provided that whenever the railway companies should make any payments to the bridge company to reduce the principal of the bonds of the bridge company then the bridge company should issue its preferred stock to the railroad companies equal in par value to the par value of the bonds retired. Those payments were not called rental. The differences in the facts serve to distinguish the two cases. This case must be decided upon its own facts.

The name which the parties gave to this item, while not controlling, is nevertheless important. They always called it rental. Furthermore, there was nothing about the payments themselves which would show that they were not rental. The single fact that they were apportioned in accordance with stockholdings rather than in accordance with the use of the facilities is not inconsistent with a holding that they were rental. In case of default, suit would lie against the lessee for rent, not against the stockholder for money due on stock or for an assessment on the stock. Not only has the petitioner failed to show that the payments in question were not in fact rental and income, but the evidence indicates that they were in fact rental. Nowland Realty Co., 18 B. T. A. 405; affd., 47 Fed. (2d) 1018. The actual collections of the petitioner during the year 1926 and the year 1928 were larger than the amounts which the respondent contends should be included in the petitioner’s income for those years. The contentions of the respondent on thk point are sustained to the extent of the amounts claimed in his pleadings.

The last issue is decided for the respondent upon authority of Commissioner v. Terre Haute Electric Co., 67 Fed. (2d) 697, which we now think correctly reversed the Board on the point.

Reviewed by the Board.

Decision will be entered under Rule 50.

       See discussion of the depreciation charge by Mr. Justice Brandéis in a dissenting opinion in United Railways v. West, 280 U. S. 234, 259, et seq.


author: Seawell:

text:
    The F. and R. Lazarus and Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 69481, 69750.
    Promulgated May 17, 1935.

      H. A. Miliills, O. P. A., Harry Stichney, Esq., and Robert P. Goldman, Esq., for the petitioner.

      Philip M. Glarh, Esq., and Stanley B. Pierson, Esq., for the respondent.
   OPINION.

Seawell:

These proceedings were consolidated for hearing and report and involve the redetermination of deficiencies in income tax in the amounts of $3,084 and $10,349.43 for the fiscal years ending January 81, 1930 and 1931, respectively. The two issues involved relate to the right of the petitioner to take depreciation on certain buildings it occupied during the taxable years under a 99-year lease, and to deduct as ordinary and necessary business expenses contributions to certain charitable institutions.

The petitioner, an Ohio corporation organized in 1851, operates the largest department store in Columbus, Ohio. In 1928 it was conducting its business in three buildings which it had previously constructed at an aggregate cost of $2,467,952.51. Two of the buildings were erected on ground then owned by the petitioner in fee, and the third building, erected in 1921 at a cost of $258,054.71, was constructed on ground held by the petitioner under a 99-year lease, with option to purchase, acquired in 1915. It also held another parcel of ground under a 99-year lease with option to purchase. In 1928 the petitioner, in a transaction involving the borrowing of money, gave to the Huntington National Bank of Columbus, trustee, a deed to the property it held in fee, and assignments of the property it held under 99-year leases. Concurrently with such conveyance and assignments, the trustee leased all of the property to the petitioner for 99 years, renewable for like periods, with an option to purchase the parcels to which it had title. In its returns for the taxable years the petitioner claimed depreciation on the three buildings based upon a useful life of 40 years. The respondent disallowed the claimed deductions on the ground that the right to take depreciation on the property followed the legal title thereto. The petitioner insists that the deed was in reality a mortgage.

It is not essential that the taxpayer claiming a deduction for depreciation be the owner of legal title to the property. In Duffy v. Central R. Co. of New Jersey, 268 U. S. 55, the railroad company was allowed to take depreciation on property constructed by it on land occupied under a 999-year lease even though the lessor had title to the betterments, which had a useful life less than the remaining term of the lease. The purchaser of the interest in a 99-year lease is entitled to take depreciation on property erected on the land by the original lessee. Cogar v. Commissioner, 44 Fed. (2d) 554, reversing 16 B. T. A. 314. Cf. Military Equipment Co., 2 B. T. A, 36; Frank Holton & Co., 10 B. T. A. 1317. We have said that “ The important question is not, in whom vests the fee or when it vested, but who made the investment of the capital which is to be recovered over a period of the exhaustion of the property. The one who made the investment is entitled to its return.” Gladding Dry Goods Co., 2 B. T. A. 336. In Rankin v. Commissioner, 60 Fed. (2d) 76, affirming 17 B. T. A. 1301, on the point, it was held that certain agreements were not leases with an option to purchase, but contracts of purchase, and Rankin was allowed to deduct amounts for depreciation on improvements made on the property. In its opinion the court said: “ It is not necessary, in a case of this kind, that the taxpayer be the owner of the legal title. It is sufficient if it appears that his use or occupancy will exceed the life of the improvement.”

It is well established that a deed, absolute in form, will be treated by a court of equity as a mortgage if it is executed as security for a loan of money. Peugh v. Davis, 96 U. S. 332; Coleman v. Miller, 8 Ohio, (Reprint) 179; Cotterell v. Long, 20 Ohio, 464; Bailey v. Poe, 120 Atl. (Md.) 242; Helmbold v. Helmbold, 158 N. E. (Ohio) 499; Obrecht v. Friese, 129 Atl. (Md.) 657. In doubtful cases, courts construe the transaction as a mortgage. Russell v. Southard, 53 U. S. 138. The right of the petitioner to take depreciation on the property in question turns upon whether the transaction occurring in 1928 created the relation of buyer and seller or lender and borrower.

In 1928 the petitioner had a mortgage of $1,TOO,000 outstanding on the property it owned in .fee and owed slightly more than $1,500,000 for money borrowed on short-term notes, and sought means of spreading the obligations over a longer period of time. The only avenue open to it was the equities it had in its real property. A banking house in Chicago, the holder of petitioner’s short-term notes, suggested a loan of $3,T50,000' for 25 years at 5 percent interest secured by a mortgage on petitioner’s real property, conditional upon the purchase of the notes at 9T.25 and the creation of a sinking fund, which, with interest on the loan and trustee expenses, would have involved an outlay of $210,000 per year. The Huntington National Bank of Columbus, one of petitioner’s bankers for about 15 years, suggested a loan of $8,500,000 at 5 percent based upon the issuance of land trust certificates on petitioner’s real property at a price of 96.T5, and the creation o.f a sinking fund for repayment of the loan. The proposal of the Huntington National Bank of Columbus, limited to $3,250,000 in amount, was accepted by the petitioner because the loan to be made under it was self-liquidating.

The transaction was closed in this manner: The petitioner executed and delivered to the Huntington National Bank of Columbus, trustee, a deed to the parcels of property it held in fee and assignments of the 99-year leases it held for the remaining property, and concurrently therewith the trustee leased the property to the petitioner for a term of 99 years, with an option of renewal for like terms and to purchase at specified prices, and executed a declaration of trust between itself and holders of the land trust certificates relating to the issuance of 3,500 certificates, each of the face amount of $1,000. Of the 3,500 certificates, 250 were held in reserve pending the exercise of the option to purchase the parcels covered by the 99-year leases assigned to the trustee by the petitioner. The sum of $3,159,68T.50 ($3,250,000 less discount of 3.25 percent) was received by the petitioner from the Huntington National Bank of Columbus under the transaction. This sum was used by the petitioner to take up its mortgage on the property and short-term notes. The release of the mortgage, the deed to the trustee and the declaration of trust were recorded consecutively on June 28, 1928.

The lease from the trustee to the petitioner provides, among other things, for annual rentals during the term of the lease based upon an annual return of 5 percent on $3,250,000; that the lessee shall create a depreciation fund and make quarterly payments to the trustee for deposit therein until the fund reaches the sum of $2,600,000, and that such obligation may be satisfied by the delivery of cash, land trust certificates issued under the declaration of trust, or obligations of the United States; that the lessor shall pay interest on the amounts deposited in such fund, provided that any amounts may be, at the request of the petitioner, invested in obligations of the United States or certificates issued by the trustee under its declaration of trust; that the lessee shall have the option to purchase the lessor’s interest in the property for $3,605,000 between June 1, 1933, and May 31, 1938; for $3,570,000 between June 1, 1938, and May 1, 1948; for $3,535,000 after June 1, 1948, plus, in each case, accrued rentals to the date of purchase; that in case the option to purchase is exercised there shall be credited on the purchase price (1) all amounts then in the hands of the lessor as trustee not otherwise due for distribution under the terms of the trust agreement with the certificate holders, (2) any amounts in the hands of the lessor received as compensation for the appropriation to public use of any part of the premises, (3) the amount of cash in the depreciation fund, including the net proceeds of any securities other than land trust certificates, and the option price of any land trust certificates held in the depreciation fund, and (4) the net unappropriated proceeds of any insurance; that the lessee shall pay all taxes and other charges on the depreciation fund; that in case the lessee fails to exercise the option to purchase or the lease is terminated on account of default of the lessee, the depreciation fund shall become the property of the lessor as liquidated damages on account of depreciation in value of .the premises; that in case of condemnation of a substantial portion of the premises the lessee shall exercise the option given it to purchase; that there shall be no diminution of rent in case of condemnation or loss by fire of any portion of the premises; and that the lessee shall pay all taxes and insurance on the property and keep it in good condition, order and repair.

The land trust certificates were sold to the public at $1,010 to yield a return of 4.95 percent. The certificates recite, among other things not important here, that the holder is the owner of a portion, stated in 3,500ths, “ of the equitable and beneficial interest ” in the real property under lease to the petitioner; that the trustee will account to the registered owner of the certificate quarterly for the owner’s proportionate share of the trust estate or the net proceeds thereof; and that the certificate is subject to all of the terms of the declaration of trust under which it was issued.

The declaration of trust executed by the trustee, in addition to the terms of the certificates as set forth in the preceding paragraph, recites the terms of the option to purchase given the petitioner under the lease; that the certificates are subject to call at prices ranging from $1,010 to $1,030, depending upon the period during which the right is exercised, plus an adjustment for accrued rentals; that in the event the property is sold distribution of the net proceeds shall be made among the holders of the certificates; that the duties of the trustee shall be restricted to the collection of rent from the trust estate and the distribution of the net proceeds thereof to the certificate holders; and that the holders of the certificates shall have no right to call for a partition of the trust estate.

From the undisputed testimony in the record it is clear that the petitioner’s desire was to obtain a long-term loan on the security of its real property, with provision for reacquisition of unencumbered title. It was not interested in selling the property to raise the needed funds. The petitioner then considered the property conveyed to be worth around $6,000,000 and it would not have sold it for $3,250,000, the face amount of the trust certificates actually sold. The representative of the bank in the transaction testified that he did not consider that the bank was buying the property, and that the deal was merely one involving a loan with ample security. The bank had the property appraised to determine not whether the property was worth $3,250,000 to it as a buyer, but to establish the value of the land and improvements for loan purposes. The appraisal made by qualified appraisers established a value of $3,453,125 for the land and $3,056,427 for the improvements as of the time of the transaction.

The transaction was carried out in the form described instead of by a mortgage loan because of the lack of a market at that time for mortgage notes. The annual rentals were fixed on the basis of a 5 percent return on the face amount of the outstanding certificates, an amount established by evidence to be less than a fair rental. This the petitioner recognized by making a rent charge of $375,000 in its books each year for the property. The option price of the property held in fee was fixed at an amount equal to the call price of the outstanding certificates and the amount of the quarterly payments into the depreciation fund is sufficient to retire all of the certificates within 48y2 years at the call prices thereof. Up to this time the petitioner has been able to meet the requirements of the fund with certificates purchased in the open market at less than the call prices and now has on hand certificates of a face amount sufficient to meet its depreciation fund obligations for sixteen years. The petitioner desired to have the lease provide for a depreciation fund equal to the option price of the property, but it was limited to $2,600,000 in the lease in order to bring the transaction within a certain ruling of the Attorney General of Ohio.

From a consideration of all the evidence we conclude that the deed given was in reality a mortgage, and that the transaction was not one in which the petitioner lost its right to deductions for exhaustion of the property conveyed. The right of the petitioner to exhaustion on the improvements it made in 1921 on the property then occupied by it as the original lessee under a 99-year lease is controlled by Duffy v. Central R. Co. of New Jersey, supra. These holdings are not contrary to Weiss v. Wiener, 279 U. S. 333. In that case, as the court pointed out in Cogar v. Commissioner, supra, Wiener took the lease with the buildings and had no investment in the property to recover.

Of the qualified witnesses produced by the petitioner to express an opinion on the point, one testified that the property in question had a useful life of from 40 to 50 years; another, 45 to 50 years; another, 40 years; and the fourth, 60 years. From their testimony we find that the property has a life of 50 years for depreciation purposes. Exhaustion will be computed at the rate of 2 percent per annum on a cost basis of $2,467,952.57.

The petitioner’s vice president and treasurer, Fred Lazarus, Jr., assisted in the organization of the Columbus Community Fund. He has always actively participated in its affairs and been a member of its executive committee, and with another individual was responsible for obtaining the larger contributions to the fund. About 50 agencies derive their funds from the Columbus Community Fund.

During the taxable years the petitioner employed between 1,400 and 1,600 employees and was either the largest or the second largest employer of labor in Columbus, a city having a population of about 300,000. It employed two full-time nurses and had a physician subject to call.

A survey made in 1928 by the Columbus Community Fund disclosed that about 20 percent of the petitioner’s employees or members of their families were in active contact with social and health agencies deriving their funds from the Columbus Community Fund. Surveys made relating to employees of an undisclosed number of other concerns engaged in various kinds of business disclosed that not less than 15 percent of the employees of any concern were receiving benefits from such agencies. Of a group of 199 employees of petitioner investigated by the Columbus Community Fund in 1928, 35 of them or members of their families were known to the family welfare agencies of the Columbus Community Fund. Of these, 17 were, known to the agencies in the health group, 4 to such agencies and the family care group, 3 to the health group and the protective and corrective group, 4 to the health and family groups and also to agencies of the protective and corrective group, and 7 to the family care group. These agencies do not include neighborhood houses, character building or recreational organizations, or hospitals, except the Children’s Hospital and White Cross Hospital. Contributions to the fund were solicited from employers of labor on the basis of the results shown by these investigations.

The facilities and services of the organizations supported by the Columbus Community Fund were available to all citizens of Columbus, no preference being given employees of the petitioner.

The Columbus Community Fund considered $10 per employee to be the minimum amount concerns in Columbus should contribute under normal business conditions. The amount was subsequently increased to take care of additional demands upon the agencies deriving their income from the fund. During the taxable year the petitioner made the following contributions to the organizations shown:

The petitioner believed that the agencies of the Columbus Community Fund, the White Cross Hospital, and the Salvation Army in Columbus helped make the city a better place in which to live, thereby increasing its opportunities for business, and that by showing its willingness to bear its share of the cost of such work it created the good will of its customers. The petitioner made no special effort to obtain publicity in connection with its contributions. Its contributions to the agencies have always been among the largest in the community, and because of that fact they received a considerable amount of publicity. The petitioner was also of the opinion that failure to make contributions to these agencies would have resulted in loss of patronage from enthusiasts of social service work of the kind being conducted by the agencies.

Article 264 of Regulations 74 provides that :

Donations made by a corporation for purposes connected witb the operation of its business, * * * when limited to charitable institutions conducted for the benefit of its employees or their dependents are a proper deduction as ordinary and necessary expenses. Donations which legitimately represent a consideration for a benefit flowing directly to the corporation as an incident of its business are allowable deductions from gross income.

Under these regulations, which have the force of law, the petitioner must show a direct benefit to its employees or business in order to be entitled to deduct the donations in question as an ordinary and necessary business expense. Old Mission Portland Cement Co. v. Helvering, 293 U. S. 289.

The petitioner claims to be within the statute on the ground that its employees received some benefit from the services of the agencies deriving their operating funds from the organization to which the contributions were made and that failure to make payments would have resulted in serious loss to its business.

An investigation conducted in a prior year disclosed that some of the petitioner’s employees and members of their families had taken advantage of the facilities of some of the various charitable and other agencies receiving support from the Columbus Community Fund. Whether the same situation prevailed in the taxable years does not appear, but the argument of counsel assumes that it did. The nature of the petitioner’s business is such that it required the services of persons'of various types and walks of life and it is not regarded as unusual that out of a large group a portion should, of necessity or otherwise, seek the benefits of welfare agencies. The contributions made by the petitioner did not give its employees any better standing before the various organizations receiving support from the Columbus Community Fund than other citizens of the community, and it does not appear that a contribution by the employer of an applicant for help, if employed, was a prerequisite to the rendition of assistance. The petitioner’s vice president and treasurer had played a prominent part in the affairs of the Columbus Community Fund since its inception, and the petitioner considered itself under a moral obligation to contribute to a cause receiving the active public support of one of its high officers. Obviously, there could have been no division of sentiment. In making the contributions, we think the petitioner was motivated by philanthropic rather than business reasons.

The petitioner did not seek the publicity its contributions received. While failure to contribute would have resulted, as Fred Lazarus, Jr., testified, in loss of patronage of a good many people who are almost fanatical on the subject of social service of this kind”, it may be that some loss of business occurred from participation in the creation of the fund, for there are at times critics of the best of good deeds and wide difference of opinion as to how funds for charitable purposes should be raised and spent. It also may be true that the petitioner had patrons who believed that it should have contributed a larger amount' and refrained from dealing with petitioner on account of their views. Contributions made to charitable* institutions for the purpose of avoiding criticism or ill will are not deductible as ordinary and necessary business expenses. W. M. Ritter Lumber Co., 30 B. T. A. 231 (271), in which contributions claimed to be deductible were made to the Columbus Community Fund.

The petitioner cites a number of cases as authority for sustaining its claim, but relies chiefly on Evening Star Newspaper Co., 28 B. T. A. 762. In that case, as was pointed out in W. M. Ritter Lumber Co., supra, the existence of the petitioner was dependent upon the “ general opinion and esteem of the public within its circulation radius.” No such fact exists here.

Claims of the sort involved here are controlled by their peculiar facts. Old Mission Portland Cement Co. v. Helvering, supra. From the evidence here we are unable to find as a fact that the contributions resulted in any direct benefit to petitioner’s employees or its business, and, accordingly, sustain the action of the respondent in refusing to allow the several amounts as ordinary and necessary business expenses.

Decision will be entered wider Bule 50.


author: SteRnhagen :

text:
    E. B. Teague, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 73034.
    Promulgated May 17, 1935.

      George E. H. Goodner, Esq., for the petitioner.

      Clay C. Holmes, Esq., for the respondent.
   OPINION.

SteRnhagen :

The petitioner, a transferee of the assets of the Advance Lumber Co., which was in turn a transferee of the assets of the Pioneer Lumber & Creosoting Co., the original taxpayer, contests the Commissioner’s determination of liability against him for a deficiency of $9,320.48, plus interest, in Pioneer’s income tax for 1928. By a severance of the issues, the only question now argued is whether assessment of Teague’s liability, if any, is barred by the statute of limitation. The facts upon which that question rests are not in dispute.

March 14,1929, Pioneer filed its 1928 return.

August 30,. 1930, the Commissioner made a jeopardy assessment against Pioneer of $9,320.48 deficiency, with interest.

September 15, 1930, the Commissioner sent to Pioneer a notice of the jeopardy assessment, as provided in section 273 (b), Kevenue Act of 1928. No petition contesting such determination was filed with the Board of Tax Appeals.

July 8, 1933, the Commissioner made a jeopardy assessment against petitioner of liability for such deficiency of Pioneer, plus interest.

July 10, 1933, the Commissioner sent to petitioner a notice of liability as transferee of the Advance Lumber Co., a transferee of Pioneer. Thereafter the petition was filed instituting this proceeding contesting such determination.

Before this, on April 7, 1931, the Commissioner sent notice of liability to the Advance Lumber & Timber Co., as transferee of Pioneer. June 6, 1931, a petition was filed. The proceeding was heard and, on a memorandum opinion, judgment of no liability was entered, June 12, 1933. The Advance Lumber & Timber Co. was a subsequently created corporation which if a transferee at all only became so in succession to the petitioner.

The Commissioner made a jeopardy assessment of the deficiency against the original taxpayer, and there was no such period as is described in section 277 as “ the period during which the Commissioner is prohibited from making the assessment.” There was no occasion, therefore, for the suspension of the running of the statute of limitations which section 277 provides. There was neither fraud nor a waiver, and hence the period of limitation upon assessment is the ordinary statutory period provided in section 275. The actual assessment of August 30, 1930, neither shortened nor lengthened that period, and if the Commissioner, within the initial two-year period, should have discovered an additional deficiency he was at liberty to determine it and assess it, since the Board had not been invoked as to the earlier one. March 14, 1931, was, therefore, the expiration of the period' of limitation for assessment against the taxpayer.

By section 311 (b) (1), the period of limitation for assessment of the transferee liability of the initial transferee (Advance Lumber Co.) was one year longer, or'until March 14,1932. That period was not suspended by any determination of the Commissioner or any proceeding or right to a proceeding before the Board. By section 311 (b) (2), the period as to the next succeeding transferee (petitioner), expired March 14, 1933, unless suspended. Nothing happened before that date to suspend the running of the statute. Consequently, the present determination and assessment in July 1933 were both too late.

The respondent argues that his determination of transferee liability against the present petitioner was not after the expiration of the statutory period, and his argument takes two separate courses.

The first argument is that the notice of September 15, 1930, following the jeopardy assessment of August 30, was required by section 273 (b), and such notice must therefore be regarded as a notice under section 272 (a). Since, under section 272 (a) no assessment could, in the ordinary case, be made until the expiration of the 60 days within which the taxpayer could file a petition with the Board, the Commissioner treats the period of 60 days after the jeopardy assessment notice was sent to Pioneer as a period of suspension under section 277, to which the additional 60 days must be added. The fact is, however, that in respect of a jeopardy assessment the Commissioner is not prohibited from making an assessment as he is in the ordinary nonjeopardy case, and although the notice of jeopardy assessment serves the same purpose as an ordinary notice of deficiency, namely, to give the taxpayer an opportunity to litigate before the Board, it does not serve, as does the ordinary notice of deficiency, to prohibit the Commissioner from making the assessment. Assessment has already been made. There is, therefore, neither reason nor express statutory requirement for a suspension of the running of the statute of limitations.

The second theory urged by the Commissioner is that the proceeding of the Advance Lumber & Timber Co. decided by the Board June 12, 1933, served to suspend the running of the statute from April 7, 1931, when the notice of transferee liability was sent to that corporation, until June 12, 1933, when the judgment of no liability was entered. This view, we think, can not be sustained. The Advance Lumber & Timber Co. was beyond the line of succession of transferee liability leading up. to this petitioner. For present purposes, that corporation had nothing whatever to do with Pioneer’s deficiency. We can not read section 311 (d) to mean that the Commissioner has it in his power, by the mere unfounded determination of liability by an unrelated person or corporation, to suspend the running o.f the statute on a deficiency; had he such power he could, by making such determination successively against any person he might select, suspend the period indefinitely and thus completely frustrate it. The purpose of the parenthetical provision of section 311 (d), “(and in any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final) ”, is primarily to state expressly what the court held in American Equitable Assurance Co. of New York v. Helvering, 68 Fed. (2d) 46, namely, to suspend the statute during the pendency of a proceeding before the Board, notwithstanding that the Board should ultimately be held to be without jurisdiction. It can not be regarded as suspending the period merely because the Commissioner, whether arbitrarily or otherwise, has sent a notice of his determination of liability and thus caused his own hands to be tied in respect of its assessment, no matter how fantastic the liability determination may be. The Commissioner, it should be remembered, is not required to proceed as to transferees one at a time, but may send his notice of liability .for the same deficiency to any number of transferees at once, and there is no reason, therefore, to suspend the running of the statute as to all others during the pendency of a proceeding against a person who is outside the line of transferee liability.

We hold, therefore, that the assessment of July 8, 1933, and the notice of July 10, 1933, were beyond the expiration of the period of limitation applicable to the petitioner.

Judgment will be entered for the petitioner.


author: Arundell :

text:
    B. Mahler (or Baruch Mahler), Deceased, F. M. Riddleberger, adm. d. b. n., w. w. a., Estate of B. Mahler (or Baruch Mahler), Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 74042.
    Promulgated May 22, 1935.

      Floyd F. Toomey, Esq., for the petitioner.

      L. W. Greas on, Esq., for the respondent.
   OPINION.

Arundell :

This proceeding has been submitted on an agreed statement of facts, from which we are asked to decide whether the determination of the respondent is correct in asserting a deficiency in income tax in the sum of $1,280.17 for the year 1931.

It appears that the estate of the decedent, who died in 1924, had been fully distributed and the executrix discharged when the respondent determined that there was an additional tax due on the decedent’s income for 1922. Representations were made to the local court regarding the new deficiency, whereupon the petitioner was appointed administrator for the specific purpose of protecting the interests of the estate in connection with the proposed additional income tax and also for the purpose of taking the necessary steps to secure a refund of an additional estate tax paid by the estate in 1926. The net result of his activities, and of the attorneys and accountants employed by him, was to secure a reduction of the proposed income tax deficiency, and a refund of substantially all of the additional estate tax paid, together with interest thereon. The parties agree that the interest on the refund constitutes gross income, but petitioner seeks in this proceeding to deduct therefrom the fees paid to the attorneys and accountants and other expenses incurred in prosecuting these tax matters.

Many cases involving the deductibility of fees and commissions paid by and to the administrators have been before the Board and the courts. The right to the deduction must be found in the statute; it is there provided that the ordinary and necessary expenses of carrying on a trade or business may be taken as a deduction from gross income. We have no question that fees and expenses were both ordinary and necessary in the circumstances here present. Nor is there any real attack on the reasonableness of the fees in the sense that they were agreed upon'in an arm’s length transaction and presumably approved by the local court.

The nub of the question is whether the petitioner may be said to be carrying on a trade or business in which the fees and other items were incurred as expenses. Without entering into a detailed discussion of what constitutes carrying on a trade or business, it is sufficient to say that we do not believe that an administrator whose sole function is to settle the taxes of an estate after all of its property has been fully distributed can be said to come within the meaning of that term. The settlement of the tax question of an estate is essentially a matter of administering the estate and the expenses incident thereto constitute an expense of administration chargeable against the corpus of the estate. Art. 282, Regulations 74; James C. Ayer et al., Trustees, 26 B. T. A. 9. The carrying on of a trade or business denotes something more than the handling of an isolated transaction. It carries with it the idea oí continuity, that of “ business being done, not from time to time, but all of the time.” Hutchings v. Burnet, 58 Fed. (2d) 514. It is pointed out in Monell v. Commissioner, 70 Fed. (2d) 631, that the test of deductibility is not whether expenses were' incurred in obtaining income. Had that been the intent of Congress, “ it would have been too simple and easy to have said so to make it reasonable to believe that such was intended by the language which plainly limited expenses to those incurred ordinarily and necessarily in carrying on a trade or business. If they come within the definition, expenses not incurred in obtaining income are deductible.” It is our view that in prosecuting the tax matters in this case neither the estate nor the administrator was engaged in carrying on a trade or business, hence the expenses thereof are not deductible. Cf. Lindley v. Commissioner, 63 Fed. (2d) 807; Van Wart v. Commissioner, 293 U. S. 537.

Decision will be entered for the respondent.


author: McMahon:

text:
    C. H. Clovis, Petitioner, v. Commissioner of Internal Revenue, Respondent. G. P. Roberts, Petitioner, v. Commissioner of Internal Revenue, Respondent. Blanche C. Hoge, as Executrix of the Estate of Arthur K. Hoge, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 68433-68435.
    Promulgated May 23, 1935.

      Robert P. Smith, Esq., for the petitioners.

      P. M. Clarh, Esq., for the respondent.

       (a) When used in this Act—
      *******
      (2) The term “ corporation ” includes associations, Joint-stock companies, and insurance companies.

   OPINION.

McMahon:

The first question to be determined is whether respondent erred in holding that Clovis Gas Trust was, in 1929, an association within the meaning of section 701 (a) (2) of the Revenue Act of 1928, and hence taxable as a corporation under the provisions of section 13 of such act. If he did err in this respect then there is no tax or interest due from the Clovis Gas Trust as an association and there is no necessity for considering the question of whether the respondent has shown that the petitioners are liable as transferees of the Clovis Gas Trust or for considering the assignment relating to the respondent’s determination of the amount of income derived by the Clovis Gas Trust.

The word “ association ” is not defined in the revenue acts. However, in Hecht v. Malley, 265 U. S. 144, where the Supreme Court had under consideration an act of Congress providing that every corporation, association, joint-stock company, and insurance company should pay a special excise tax with respect to the carrying on or doing business, the word “ association ” is defined as follows:

Tlie word “ association ” appears to be used in the Act in its ordinary meaning. It has been defined as a term “ used throughout the United States to signify a body of persons united without a charter, but upon the methods and forms used by incorporated bodies for the prosecution of some common enterprise.” 1 Abb. Law Diet. 101 (1879) ; 1 Bouv. Law Diet. (Rawle’s Ed. Kev.) 269; 3 Am. & Eng. Enc. Law (2 Ed.) 162; and Allen v. Stevens, 33 App. Div. 485, 54 N. Y. Supp. 8, 23, in which this definition was cited with approval as being in accord with the common understanding. Other definitions are:
“ In the United States, as distinguished from a corporation, a body of persons organized for the prosecution of some purpose, without a charter, but having a general form and mode of procedure of a corporation.” Webst. New Internat. Diet.
“[U. S.] An organized but unchartered body analogous to but distinguished from a corporation.” Pract. Stand. Diet.
* * s)t * % * *

Tbe result in the instant proceeding thus depends upon whether the individuals comprising the Clovis Gas Trust were united or organized upon the methods and forms used by incorporated bodies for the prosecution of some common enterprise. While prior decisions enunciate general principles and illustrate the application thereof to the facts presented in each case, it is apparent that each case must be determined upon its own peculiar facts. Joseph E. Swanson et al., Trustees, 29 B. T. A. 1123; Commissioner v. Duckwitz, infra; and Coleman-Gilbert Associates v. Commissioner, infra.

Considering all the circumstances in the instant proceeding we feel constrained to hold that the Clovis Gas Trust under the agreement of January 1, 1928, was not, during the year 1929, an association taxable as a corporation. In our opinion this was a joint venture prosecuted by the Clovis family and some of their friends and neighbors. The individuals entered into an agreement providing that the properties should be held and the enterprise be conducted by trustees. However, the evidence establishes that this was merely for convenience and that the reason for using this form was because it was in common usage in the community. It appears that the agreement in question was not carried out according to its letter. No deed was ever executed transferring title to the property to the trustees as was contemplated by the agreement, and the trust agreement itself was never recorded anywhere. By the agreement the individuals became tenants in common in their ownership of the property and, so far as the record discloses, continued in such relationship without doing anything further to transfer the legal title to the trustees. If the agreement, considered together with the predecessor agreements of trust, should be deemed sufficient to vest legal title in the trustees, our holding would have to be that the trustees merely held bare legal title for the tenants in common as a mere convenience, they retaining the beneficial title as tenants in common. Obviously it would have been cumbersome and impractical to execute a conveyance to each coowner of his share of the property. Commissioner v. Duckwitz, infra. In either event they actually conducted the enterprise, not through an organization, but through an agent, C. E. Clovis. Some semblance of organization is necessary to result in an association. Page v. McLaughlin, infra. And the nature and purpose of the trust agreement should be considered in determining whether an association results. Coleman-Gilbert Associates v. Commissioner, infra. While the trust agreement in question provides for the conduct of the business of developing the oil property by the trustees, the proof definitely establishes that this was not carried out. The organization known as the Clovis Gas Trust was something of an empty shell. Neither the trustees nor the shareholders ever held meetings or elected officers. The trustees never made decisions upon the conduct of the business or directed it in any way. On the contrary, C. E. Clovis, who was the moving factor in the enterprise and lived in the vicinity of the operations, performed all necessary functions, including tbe collection and disbursement of funds. By the agreement Clovis, or whoever might succeed him as secretary, was. appointed attorney in fact for the coowners to sell the oil produced at such prices, to such parties and at such times as he might deem best. No one ever succeeded him as secretary. It appears that he also performed all the other necessary functions for the co-owners without any objection on their part and by their consent. Decisions as to drilling and securing funds were made by C. E. Clovis and the other coowners living in the vicinity. None of the trustees lived in that 'locality. Notwithstanding that C. E. Clovis was, for one purpose or another, designated as attorney in fact, secretary or treasurer, as well as agent, looking at the substance rather than the form, he and not the trustees actually carried on the business of the enterprise, acting for and in behalf of the individuals who were tenants in common.

The testimony of G. P. Koberts, one of the trustees, is illuminating and shows that if any trust was ever actually created, it was merely a passive trust to hold title to the property. He testified, in part, that the agreement to sell gas was consummated by C. E. Clovis as agent and he himself was not in touch with the matter except from time to time; that he went down to the scene of operations once and saw wells drilled; that he helped to arrange the sale of gas and later the sale of the property, but he was not interested in it actively; that he never exercised the authority granted by the agreement to him as trustee to drill wells, make contracts, and sell gas; that neither the trustees of the original trust nor those of the merged trust ever held any meetings; that the form of agreement used was the form used in that community showing the respective interests of the group, as stated by C. E. Clovis, and he never went into it beyond that; that he signed the certificates of interest; that this certificate form was prepared by C. E. Clovis; that he himself had nothing to do with the preparation of it, but objected to it on the ground that there was a possibility of a change in the interest if the contributions were not continued and that the certificates might misrepresent the interest involved; that after the issuance of the certificates there was a change in the interests in regard to one well where the contributions were not received; that the distributees in the final distribution did not get the amounts called for by the certificates; that he knows of no other function that he performed as trustee during the life of this trust except signing the certificates; that there were never any meetings of the shareholders; that no officers were ever elected; that “ I felt that I was in a family proposition, and, * * * that Mr. C. E. Clovis was there on the ground, and was the man that we had originally expected to run this, and he actually was running it, and that, since he was, it would be presumptuous for me, being absent, to attempt to tell him what to do ”; that he accepted what C. E. Clovis had done at all times; that there was no discrimination and no argument about it; and that, except for signing the certificates, he never exercised any function whatever other than “ I would for Dr. Clovis or C. E. Clovis in any friendly capacity.”

Proceedings in which somewhat similar facts and circumstances were presented are reported in F. E. McGlone, 22 B. T. A. 358, in which there were numerous petitioners. There, four individuals acquired an oil and gas lease and in order to obtain funds to drill a well they decided to sell an undivided one-half interest therein. They conveyed an undivided one-half interest therein to trustees and retained the other undivided one-half interest. The trustees were to sell the undivided one-half interest transferred to them. The interest purchased by any person was to be in proportion to his payment as compared with the total value of the entire lease. The trustees were to execute conveyances and assignments to the purchasers. Such trustees were to act until enough money was obtained, when, it was provided, a meeting of all the parties interested in the lease was to be called for the purpose of electing trustees to serve for one year or until their successors should be elected. It was provided that the prospective purchasers should participate in the earnings or profits in proportion to their interests. By the trust agreement the trustees had the power to collect all moneys from oil and other sources, to pay expenses, to distribute the profits proportionately among the owners, to borrow money, and to develop the property by drilling wells if deemed advisable by them. One hundred and ten individuals purchased interests from the trustees and received certificates of interest. There were sales and transfers of these interests. The enterprise was, by consent, called the “ Iowa-Burk Syndicate.” It had no charter, no bylaws, held no formal meetings and had no officers or directors. Wade, one of the trustees, handled the money and looked after most of the business by common consent. The lease was subsequently sold and the proceeds were distributed to the owners in proportion to their interests. The respondent determined that the syndicate was an association taxable as a corporation, determined a tax against it, and asserted liabilities therefor against the petitioners in those proceedings as transferees.

We there held that the syndicate was not an association taxable as a corporation. We stated that while the agreement provided that the purchasers did have a voice in the management through their right to elect trustees periodically, there was nothing in the record to show that this plan was carried out, that no meeting was ever held, and that Wade acted as manager by common consent. We held that at the time the trustees sold all of the undivided one-half interest the trust ceased and that both the legal and equitable title to the interests sold vested in the purchasers by operation of law and that they became tenants in common with the other owners of the whole lease. We further stated that in the absence of any partnership or other agreement their relation with each other depended solely upon their title.

The Commissioner prosecuted a petition for review against one of the petitioners in that case, Duckwitz, who was one of the purchasers of an interest from the trustees, in the United States Circuit Court of Appeals for the Seventh Circuit. The court in that case, Commissioner v. Duckwitz, 68 Fed. (2d) 629, affirmed the holding of the Board that the syndicate was not an association taxable as a corporation, and stated in part:

If we read the evidence and the trust agreement together it seems tolerably plain therefrom that a small group of people in Charles City, Iowa, planned a simple and inexpensive method of handling a small venture in Texas oil speculation.
A single tract of ten acres was the field of their operation. Nowhere was there a suggestion that the trustees or members contemplated any oil mining activities outside of this tract. Those who conceived the project planned that this local group, who were willing to back their hopes with a contribution sufficient to drill an oil well, should divide the profits. The contributions of each were so small that a conveyance of a fractional interest in the real estate would have been cumbersome and impractical. Confidence and trust in one of the members led to the deposit of money with him, which in many instances was paid without his giving the payer any written document whatever.
While not- determinative of the question before us, it is interesting, to note that the Court of Appeals for the Eighth Circuit in the case of Burnet v. Burns, 63 F. (2d) 313, held that the four original investors were, for purposes of taxation, tenants in common and not members of an association.
Under all the circumstances, we do not feel justified in disturbing the Board’s finding that the interest which each investor took was -an interest in the land and that they stood in the relation, each to the other, of tenants in common. In reaching this conclusion we are adhering to the rule previously announced by us in Tyson v. Commr. 54 F. (2d) 29, and Tyson et al v. Commr. 68 F. (2d) 584, decided December 15, 1933, which makes the decision in each ease turn on the facts of said case. * * *

The Commissioner also prosecuted petitions for review against two of the original investors, Brouillard and Burns, in the United States Circuit Court of Appeals for the Tenth Circuit and the United States Circuit Court of Appeals for the Eighth Circuit, respectively. In Commissioner v. Brouillard, 70 Fed. (2d) 154, and Burnet v. Burns, 68 Fed. (2d) 313, those courts affirmed the decision of the Board that the four original investors were not members of an association taxable as a corporation. The Board had held that an undivided one-half interest in the lease had remained, at all times, the property of the four original owners as tenants in common and that the profit accruing to their one-half interest was taxable to them individually. In Burnet v. Burns, supra, the court stated:

Certainly one who is a cotenant * * * does not render himself liable to pay taxes as a corporation because he permits his cotenant to manage his property and account to him for his share of the profits.

Petitions to review were prosecuted in the Circuit Courts of Appeals by the respondent against others who were petitioners in F. E. McGlone, supra, but they were dismissed by the courts on motion of the Commissioner. Helvering v. Bradbury (C. C. A., 6th Cir., Sept. 26, 1934); Helvering v. Hammond (C. C. A., 10th Cir.), 73 Fed. (2d) 1000; Commissioner v. Holden (C. C. A., 6th Cir., Oct. 3, 1934); Helvering v. Angell (C. C. A., 9th Cir., Oct. 8, 1934) ; Helvering v. Linnell (C. C. A., 9th Cir., Oct 8, 1934); and Helvering v. Lindaman (C. C. A., 8th Cir.), 73 Fed. (2d) 1000.

We see no fundamental difference in principle between F. E. McGlone, supra, and the instant proceedings. As to all of the petitioners in the F. E. McGlone case, excepting the four original owners, there is considerable basis for the view that the Commissioner made out a better case there than he has made out here. See also the following cases, where under more or less similar facts and circumstances a similar result was reached: Myers, Long & Co., 14 B. T. A. 460; Cornet & Zeibig Trust, 21 B. T. A. 1352; Royal Syndicate, 20 B. T. A. 255; Wodehouse v. Tarleton (Dist. Ct., Territory of Hawaii, July 3, 1934); Lucas v. Extension Oil Co., 47 Fed. (2d) 65, affirming Extension Oil Co., 16 B. T. A. 1028; Commissioner v. Coombs, 76 Fed. (2d) 682, affirming an unreported decision of the Board; Page v. McLaughlin, 7 Fed. Supp. 75; and Coleman-Gilbert Associates v. Commissioner (C. C. A., 1st Cir.), 76 Fed. (2d) 191. In the last cited case the court stated in part:

The imposition of a double tax upon the income of a trust viz.: a tax, first, on the income of the trust as an entity, and a further tax upon the distributive shares .of the beneficiaries should clearly be warranted under the Acts of Congress, and' should not have as its basis some remote resemblance to a corporation. If there is doubt, it should be resolved in favor taxpayer. Crocker v. Malley, supra, p. 233; Hecht v. Malley, p. 160. To warrant a tax as a corporation, we think that not only should the trustees be actively conducting a business chiefly for profit and in the form and manner of directors of a corporation, but where there is doubt, it should not be determined wholly by a resemblance in form, but the nature and purpose of the trust agreement should be considered' in determining whether a trust is an association within the intent of Congress. * * * [Emphasis supplied.)

We have not overlooked Swanson v. Commissioner, 76 Fed. (2d) 651, affirming an unreported decision of the Board, or Monrovia Oil Co., 28 B. T. A. 335. They are distinguishable.

The determination of the respondent that the Clovis Gas Trust was an association taxable as a corporation during the year 1929 is disapproved.

Reviewed by the Board.

Decision will be entered as to each petitioner that there is no liability for taxes or interest of the Clovis Gas Trust for the year 1929.


author: MoRRis:

text:
    Delight Ward Merner, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 73406.
    Promulgated May 24, 1935.

      J. Lenox Ward, Esq., for the petitioner.

      George D. Brdbson, Esq., for the respondent.
   OPINION.

MoRRis:

Section 113 of the Eevenue Act of 1928, to the extent applicable, provides as follows:

(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—
‡ * ‡ $ * * *
(2) Girt afteb December 31, 1920. — If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor * * *.

The petitioner contends that the gift took place and was completed prior to December 31,1920, and that the basis for such determination should be the fair market Value at the date of gift.

The well established rule laid down in Edson v. Lucas, 40 Fed. (2d) 398; Adolph Weil, 31 B. T. A. 899; J. D. Varnell, 28 B. T. A. 231, and many other cases upon the subject, that in order to constitute a valid gift “ There must be (1) an intention on the part of the competent donor to give; (2) an acceptance by a competent donee; and (3) a transfer of title, accompanied by delivery amounting to a complete surrender by the donor of the domination and control of the property ”, is the recognized rule in the State of Missouri. See the early case of Harris Banking Co. v. Miller, 190 Mo. 640; 89 S. W. 629, and the recent case of Roethemeier v. Veith (Supreme Court of Missouri), 69 S. W. (2d) 930, and cases there-cited.

We are satisfied that the first two requisites named have been fully evidenced in this proceeding. In fact, that the events evidenced in this proceeding culminated in a valid and unmistakable gift of 150 shares of stock of William R. Warner & Co. is not even disputed by the respondent. Indeed, by his determination, he very properly so concedes. Therefore, our question narrows down to when that gift was consummated by “delivery.” Or, more accurately stated, was there a consummation prior to December 31, 1920 ? If the gift was prior to that date we need not concern ourselves with the precise date upon which it was consummated; that is, whether by the events transpiring on Christmas alone or by the series of events which began prior to Merner’s trip to New York and ending with his ultimate instructions to the company on December 30, 1920, to divide his 300 shares of stock into two certificates of 150 shares each, one in the name of this petitioner and the other in his own name.

What shall constitute the essential delivery, dominion, or control, as those words are used respecting gifts inter vivos, always depends upon the circumstances of each individual case and upon the environment of the parties. Beaumont v. Beaumont, 152 Fed. 55, and Chambers v. McCreery, 106 Fed. 364. “ It, of course, inheres in the conception of the possession essential to a completed gift, that the donee should have such control, and such control only, of the subject matter of the gift, as is consistent with the ownership purported to be transferred to him.” Beaumont v. Beaumont, supra.

It is said in Adams v. Hagerott, 34 Fed. (2d) 899:

* * * If the subject of the gift is a chose in action, such as a bond, a note, or stock in a corporation, the delivery of the most effectual means of reducing the chose to possession or use, such as the delivery of the bond, or the note, or the certificate of stock, if present and capable of delivery, is indispensable to the completion of the gift.

And in Owen v. Commissioner, 53 Fed. (2d) 329:

* * * While delivery is essential, manual delivery of the thing given is no more necessary in the case of a gift than in the case of a sale. A deed of gift is as effective to pass title as a bill of sale. [Citations.] Nor will the failure to record the gift by a transfer of the stock on the books of the corporation prevent title from passing as between the donor and the donee. * * *.

In Hoffman v. Commissioner, 71 Fed. (2d) 929, reversing the Board at 28 B. T. A. 1264, it was orally agreed that one Dorman would buy Hoffman’s shares in a corporation at their book value on July 1, 1926. On July 9 the contracting parties met at the office of Hoffman’s attorney. Hoffman endorsed his stock certificates in blank: and delivered them to the attorney to be turned over to Dorman “when certain formalities had been complied with.” Delivery of the certificates so endorsed was not made until 1929. In reversing the Board and deciding that the sale of Hoffman’s stock took place on July 9,1926, the court said:

* * * The ground upon which it rested the conclusion that title did not pass on July 9th when the certificates were endorsed and delivered to the attorney, was that he. was to hold possession of them until Dorman should perform his part of the bargain. But the law is well settled that non-delivery of possession would not preclude title to the stock passing forthwith to Dorman if such was the intention of the parties. Hatch v. Oil Co., 100 U. S. 124, 132; Hammer v. United States, 249 F. 336 (C. C. A. 2); Dahlinger v. Commissioner, 51 F. (2d) 662 (C. C. A. 3); Eavenson v. Commissioner, 51 F. (2d) 664 (C. C. A. 3); Sanitary Carpet Cleaner v. Reed Mfg. Co., 159 N. Y. App. Div. 587; Sherwood v. Commissioner, 8 B. T. A. 103; Swenson v. Commissioner, 14 B. T. A. 675. Not only did the seller, the buyer and the party with whom the certificates were deposited testify that the sale was intended to be consummated on July 9th, but statements and conduct of the parties at that time and thereafter were entirely consistent with such intention.

In Dulin v. Commissioner, 70 Fed. (2d) 828, reversing the Board at 25 B. T. A. 1259, the petitioner was advised by her husband that he was transferring 510 shares of certain corporate stock to her. On December 23, 1920, he handed a certificate representing his stock ownership to the company’s office manager, one Petree, whose duty it was to keep the stock certificate books, and whom he told he had given the stock to Mrs. Dulin, instructing him to transfer it on the books of the corporation. Due to the rush of Christmas business the certificate was laid aside until January 4, 1921, on which date it was discovered that Dulin had not endorsed the certificate. Having finally secured endorsement, the certificate was canceled and a new certificate was issued to the petitioner and delivered to Dulin for his wife. It did not appear that the certificate was ever personally delivered to Mrs. Dulin. The respondent held that the gift was not consummated in 1920 and his determination was upheld by this Board. In reversing the Board’s decision and holding that the delivery of the certificate by Dulin to the transfer clerk of the corporation, coupled with instructions to transfer the stock to Mrs. Dulin, was a delivery to the corporation as trustee for Mrs. Dulin, consequently “ a complete surrender of control or dominion by Dulin ”, the court said:

* * * What seems to have been overlooked is that the thing Petree was instructed to do, and the only thing he was to do, was to transfer the stock upon the books of the corporation. This he could do neither as the agent of Dulin nor as the agent of Mrs. Dulin, but only in his capacity as an employee of the corporation and its transfer officer. This being so, it must follow that the delivery of the stock to Petree was a delivery of it to the corporation for the purpose of transfer, and the question to be decided is whether under such circumstances the corporation had imposed upon it some obligation or duty with respect to Mrs. Dulin so as to constitute it a trustee for her. It is conceded to be the law that while delivery of property given is necessary to complete a gift, such delivery is not required to be made directly to the donee, but that delivery may be to a third person for the benefit of the donee. In the ease of such gifts, however, constructive delivery is recognized not on principles of agency, but because the third person becomes a trustee for the donee. Smith v. Commissioner, 59 Fed. (2d) 533 (C. C. A. 7); Martin v. McCullough, 136 Ind. 331; Grissom v. Sternberger, 10 Fed. (2d) 764 (C. C. A. 4); Owen v. Commissioner of Internal Revenue, 53 Fed. (2d) 329 (C. C. A. 9). Aside from the trust relationship which arises by operation of law between one to whom the subject of a gift is delivered and the beneficial donee, there is also a well recognized trust relationship between a corporation and the equitable or beneficial owner of its stock, and this principle seems to be recognized by the courts of Tennessee. Caulkins v. Gas Light Company, 85 Tenn. 683.
In addition to the untenable ground that Petree received the certificate as the agent of Dulin, the Board based its decision upon the ground that the certificate was not endorsed nor transferred upon the books of the corporation until after December 31, 1921. We think the Board in error in its application of the law. There is no longer doubt that delivery of stock certificates with the intention of conveying title thereto is effective as a conveyance without endorsement. Nor is the transfer of stock upon the books of the corporation indispensable as between donor and donee. Grissom v. Sternberger, supra; Owen v. Commissioner, supra; Smith v. Commissioner, supra; Johnston v. Laflin, 103 U. S. 800, 12 R. C. L. 942. Of course, intention to transfer title must be clear, and the transfer of certificates upon the corporation’s books is perhaps the best indication of such intention, Marshall v. Commissioner, 57 Fed. (2d) 633 (C. C. A. 6), but that intention may be otherwise shown is not open to dispute. * * *

In the case of In re Valentine’s Estate, 204 N. Y. S. 284, Valentine, five years before his death, executed and delivered a note to his wife in which, for a nominal consideration, and in consideration of natural love and affection, he assigned certain shares of capital stock to her saying, therein:

* * * I have credited said five thousand (5,000) shares of the common stock of the Sabana-Grande Honduras Mining Company and the two thousand five hundred (2,500) shares of the common stock of the New Tork and Honduras Rosario Mining Company in my private cashbook to my wife Bertha A. Valentine. Now, therefore, I declare that I am indebted to my wife for the said five thousand (5,000) shares of the common stock of the Sabana-Grande Honduras Mining Company and two thousand five hundred (2,500) shares of the common stock of the New Tork & Honduras Rosario Mining Company which are to be delivered to her and be a preferential claim on my estate before said estate be settled. In witness whereof, I have set my hand and seal this twenty-sixth day of November, 1915.

The court there held that the delivery of the note by the donor to his wife was symbolic of the delivery of the shares themselves and that a valid gift was thereby effected.

The decedent, in In re Cohn, 176 N. Y. S. 2251, wrote out, and delivered to his wife, on her birthday, the following note:

West End, N. J., Sept. 20, 1911. I give this day to my wife, Sara IC Cohn, as a present for her (46th) forty-sixth birthday (500) five hundred shares of American Sumatra Tobacco Company common stock. Leopold Cohn.

The donor died sis days after the delivery of the instrument. The testimony there was to the effect that the decedent handed the paper to his wife, saying: “ * * * he gave it to her as a birthday present; that he had not possession of the stock, but as soon as he got it he would give it to her.”

In holding that a valid symbolic gift was accomplished, the court said:

There is no doubt that it had been held in a long line of cases in this state that delivery of the thing given is, as a general rule, one of the essential elements to constitute a valid gift. [Citations.] But it is equally true that the rule requiring actual delivery is not inflexible. [Citations.] In Beaver v. Beaver, supra, it was said that the delivery may be symbolical, as where the donor gives to the donee a symbol which represents possession. It was held in McGavie v. Cossum, where an instrument of gift of bonds was delivered, that actual delivery of the bonds was excused where the only reason for not making delivery was the feeble condition of the donor and the fact that the bonds were in the custody of a bank in a nearby city. It was said in Matter of Tan Alstyne:
The delivery necessary to consummate a gift must be as perfect as the nature of the property and the circumstances and surroundings of the parties will reasonably permit. * * * It is true that the old rule requiring an actual delivery of the thing given has been very largely relaxed, but a symbolical delivery is sufficient only when the conditions are so adverse to actual delivery as to make a symbolical delivery as nearly perfect and complete as the circumstances will allow.
As the rule requiring delivery is clearly subject to exceptions, in order to apply it correctly in varying gircumstances resort should be had to the reason for the rule. Under the civil law delivery was not requisite to a valid gift, but it was made a requisite by the common law as a matter of public policy, to prevent mistake and imposition. Noble v. Smith, 2 Johns. 52, 56, 3 Am. Dec. 399; Brinckerhoff v. Lawrence, 2 Sandf. Ch. 400, 406. The necessity of delivery where gifts resting in parol are asserted against the estates of decedents is obvious; but it is equally plain that there is no such impelling necessity when the gift is established by the execution and delivery of an instrument of gift. * * *

The Supreme Court of Missouri, in Trautz v. Lemp, 46 S. W. (2d) 135, had under consideration gifts inter vivos' of corporate stock. It appears that the testator and his wife celebrated their golden wedding anniversary on September 11, 1916, and that on that occasion he gave to each of his seven children 100 shares of corporate stock, leaving him 1,550 shares, represented by one certificate, in his name. Thereafter, in February 1917, the testator directed one of his sons, who was secretary of the company, to cancel the certificate for 1,550 shares and to issue to him in lieu thereof 15 certificates for 100 shares each and 1 certificate for 50 shares. The new certificates were entered on the books of the corporation in the testator’s name, and at his direction were dated as of the date of his golden wedding anniversary. The new certificates were' delivered to the testator, whereupon he called in another son and in the presence of this son he endorsed each of the new certificates in blank, and this son, at the testator’s request, affixed his signature as a witness to the several blank endorsements. At that time the testator had three envelopes, upon each of which he wrote the following or similar legend:

Sept, llth, 1916. This is the property of my son, * * *, given to him for his faithful work for the firm * * *. A. H. Handlan.

He then separated the new certificates, representing the 1,550 shares, into three lots, enclosed the certificates as so separated in the three envelopes and delivered the envelopes containing the shares to his third son, who was treasurer of the company. The court found ample evidence of an intention to make gifts of the shares, but decided that a valid gift inter vivos was not consummated because there was no delivery, that the delivery was to the treasurer, not as donee, but “ as treasurer of the company for safe-keeping ”, saying:

* * * It is true that the legends on the envelopes as well as what testator said to the sons show an intention to give this stock to the sons, but no language, either written or spoken, although expressing an intention to give, will amount to a gift unless that intention is executed by a complete and unconditional delivery of the subject matter of the gift, or a delivery of the written instrument by which the gift is evidenced.

Thus clearly indicating that had there been some written instrument by which to evidence the gift, even without delivery of the certificates, a valid gift would have been found.

That Merner not only intended to make a gift of 150 shares of his stock in William N. Warner Co. to the petitioner, but that he intended that the gift to take effect in 1920, we believe is clearly supported by the record. Any other conclusion would totally disregard the significance of the occasion, the spirit of the season as it was greatly heightened by the sorrowful death of one of their children and would render his Christmas “ gift ” a meaningless and empty gesture. He discussed the matter of this gift with the petitioner prior to his visit to New York and again upon his return home, at which time be penned a note stating, among other things, that his Christmas gift to her was one half of his capital stock in William R. Warner & Co. As evidence of the fact that he intended the gift to take effect as a Christmas gift he expressed regret that he was unable to deliver the certificate itself. In this connection it appears, from the testimony of record, that Merner did not, in fact, go to his business after his return from New York, just prior to Christmas, until on or about December 30. Upon his return to his office he endorsed and forwarded his 300-share certificate to the company’s New York office, • instructing his secretary to issue two new certificates for 150 shares each, one in his name and the other in the name of this petitioner. And, as further evidence of his intention to complete the gift of this stock to the petitioner in 1920, he instructed the New York office to issue the new certificates “ as of today ”, meaning December 30, 1920.

We are not unmindful that Merner became repossessed of the new certificates in accordance with his instructions to the company to send them “ to me ”, but in our view of the case sufficient had already been accomplished by the acts done to complete a valid gift inter vivos, so that this repossession — especially in view of the fact that when the certificates were returned they were placed in a joint safety-deposit box at the bank, to which this petitioner had access — is of little or no significance. Repossession by the donor under the circumstances here was not inconsistent, on the contrary was entirely consistent, with the gift that, in our opinion, had already been effected.

For. the foregoing reasons we are of the opinion that a valid gift was accomplished prior to December 31, 1920, and that the respondent erred in holding otherwise.

Judgment will be entered wnder Bule 50.