Heiner v. Crosby, 3494

• Decision Date: 24 January 1928
• Docket Number: 3516.,No. 3494,3494
• Citation: 24 F.2d 191
• Parties: HEINER, Collector of Internal Revenue, v. CROSBY. SAME v. ANDERTON.
• Court: U.S. Court of Appeals — Third Circuit

24 F.2d 191 (1928)

HEINER, Collector of Internal Revenue, v. CROSBY.

SAME v. ANDERTON.

Nos. 3494, 3516.

Circuit Court of Appeals, Third Circuit.

January 24, 1928.

John D. Meyer, U. S. Atty., and W. J. Aiken, Asst. U. S. Atty., both of Pittsburgh, Pa. (William T. Sabine, Jr., and A. W. Gregg, both of Washington, D. C., of counsel), for plaintiff in error.

James Walton and Frank B. Ingersoll, both of Pittsburgh, Pa., for defendants in error.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

These cases concern the taxes paid as income on the increase in value of the stock of the Pure Oil Company under the provisions of section 1200 (a) of the Revenue Act of 1917 (40 Stat. 329 Comp. St. § 6336b, subd. (a), and section 2, subdivision (c) of the Revenue Act of 1916 (39 Stat. 758 Comp. St. § 6336b, subd. (c)). They were argued together, involve the same question of the fair market price or value of the stock, and will be disposed of in a single opinion.

On July 21, 1913, Mrs. Crosby received from the estate of her deceased husband 13,157 shares of stock. She sold them on July 26, 1917, for $24.50 per share. She placed a value of $22.50 per share on the stock at the time she received it, and so in her return for the year 1917 she reported a gain of $2 per share. The Commissioner of Internal Revenue, on the other hand, valued the stock at $14.37½ per share when acquired, and so determined that she sold it at an increase of $10.12½ per share. He assessed the tax accordingly, and demanded payment within 10 days, on threat of penalty for nonpayment. She paid the tax and brought suit for its recovery. A jury was waived and the case tried to the court without a jury. It found that the fair market price or value of the stock at the time it was received was $22.50 per share.

In the Anderton Case, Thomas A. Anderton, executor of the estate of Thomas Anderton, deceased, acquired 10,807 shares of the common stock of the Pure Oil Company on August 20, 1915. He sold the stock on July 26, 1917, for $24.50 per share. He reported in his tax return for 1917 an increase in the value of the stock of $2 per share from August 20, 1915, to July 26, 1917. The Commissioner determined the fair market price or value of the stock when received to be $17 per share, an increase in value of $7.50 per share, and assessed the tax accordingly. This was paid under protest, and suit was brought to recover the additional tax paid on the Commissioner's determination. The learned District Judge before whom the case was tried without a jury found, as in the Crosby case, that the fair market price or value of the stock on August 20, 1915, was $22.50 per share, and so entered judgment for the plaintiff.

The collector has brought both cases here for review on writ of error. The sole question for determination, as stated above, is the fair market price or value of the stock in the Crosby case, on July 21, 1913, and, in the Anderton case, on August 20, 1915. Defendant says that the court erred in resorting to evidence of the intrinsic value of the stock, when its fair market price or value was evidenced by sales, and that the evidence in support of intrinsic value is insufficient to support the findings of fact and the judgments.

The determination of the fair market price by the Commissioner was based on the price paid for the stock on the Pittsburgh Stock Exchange on the dates in question. On July 21, 1913, the date Mrs. Crosby received her stock, 60 shares were sold on the Pittsburgh Stock Exchange at $14 3/8 per share. On August 20, 1915, the date Mr. Anderton acquired his stock, 1,185 shares were sold and the price ranged from $16 5/8 to $17 per share.

The fair market price or value of stock at a particular time is a question of fact, to be determined from all the circumstances. Market price implies the existence of a market, of supply and demand, of sellers and buyers. Sales are always evidence of a market price, but the statute requires that, in "ascertaining the gain derived from the sale," there must be not simply a "market price," but a "fair market price." Sales made at a particular time and place may be significant, but the price paid is not necessarily decisive of fair market price or value. The fact of sales, in itself and without regard to the circumstances under which the sales were made, does not conclusively establish either statutory fair market price or value. Sales made under peculiar and unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may neither signify a fair market price or value, nor serve as the basis on which to determine the amount of gain derived from the sale. In such cases resort must be had to evidence to determine "fair value." Offers made in good faith and opinions of intelligent men experienced in the business are admissible to show fair value. Louisville & Nashville R. R. Co. v. Western Union Telegraph Co. (C. C. A.) 249 F. 385; North American Telegraph Co. v. Northern Pacific Railway Co. (C. C. A.) 254 F. 417; Walter v. Duffy (C. C. A.) 287 F. 41; Boom Co. v. Patterson, 98 U. S. 403, 25 L. Ed. 206; United States v. Chandler-Dunbar Co., 229 U. S. 53, 77, 33 S. Ct. 667, 57 L. Ed. 1063.

Were the circumstances under which the stocks in question were sold peculiar, showing a restricted market, in which the sellers and buyers were limited, so that the sales did not evidence a "fair market price or value"?

The evidence shows, as the learned District Judge found, that the independent oil operators of Western Pennsylvania had for a long time suffered from monopolistic control, which interfered with and restricted every means of...