258 F.Supp. 383 (S.D.W.Va. 1966), 2476, Graney v. United States

Docket Nº:2476.
Citation:258 F.Supp. 383
Party Name:Patrick C. GRANEY and Thelma Graney, Plaintiffs, v. UNITED STATES of America, Defendant.
Case Date:September 13, 1966
Court:United States District Courts, 4th Circuit, Southern District of West Virginia

Page 383

258 F.Supp. 383 (S.D.W.Va. 1966)

Patrick C. GRANEY and Thelma Graney, Plaintiffs,


UNITED STATES of America, Defendant.

No. 2476.

United States District Court, S.D. West Virginia.

Sept. 13, 1966

Page 384

William H. Deck, Washington, D.C., for plaintiffs.

John B. Jones, Jr., Acting Asst. Atty. Gen., Dept. of Justice, Washington, D.C. and Milton J. Ferguson, U.S. Atty., Charleston, W. Va., for defendant.


FIELD, Chief Judge.

In this action the plaintiffs seek to recover the sums of $10,770.04 and $10,368.98 representing the amount of the income taxes allegedly overpaid by them for the years 1955 and 1956, respectively. Thelma Graney is involved as a plaintiff only because a joint return was filed by her and her husband and for the purposes of this opinion the plaintiff, Patrick Graney, will be referred to as taxpayer. The principal question presented is whether a certain transaction entered into between the taxpayer and his corporate employer in the year 1953 constituted a contract of sale which should have been taxable in full in that year, or whether the transaction was merely an option which required the taxpayer to recognize the taxable incidence in the year or years in which the option was exercised.

The taxpayer was president and a member of the board of directors of Gulf Mining Company as well as a member of the board of directors of West Gulf Coal Company prior to the merger of West into Gulf on June 30, 1953. The

Page 385

directors of the two companies felt that a merger was desirable, and prevailed upon the taxpayer to accept the presidency of Gulf, the surviving corporation in the merger. Incident to their efforts to persuade the taxpayer to continue his participation in the management of the merged corporations, the two corporations Gulf and West, entered into an agreement with the taxpayer dated May 1, 1953, effective on June 1, 1953, permitting the taxpayer to purchase 500 shares of post-merger Gulf Mining stock at the price of $25 per share. The board of directors of Gulf ratified this agreement by resolution in which they set forth the details of the form of the agreement, the resolution providing among other things: '* * * that there be given to P. C. Graney the exclusive right and option to purchase 500 shares of the stock of the merged corporation, at the price of $25 cash, per share, during the period of five years commencing June 1, 1953, in whole or in part, * * *.' The resolution further ratified, approved and confirmed the stock option agreement which had been entered into between Gulf and West Gulf and the taxpayer under date of May 1, 1953.

The agreement had been prepared by Charles Mahan, the taxpayer's personal attorney, after thorough consultation with the taxpayer. Mr. Mahan had also been present at the meetings of the boards of directors at which the proposed agreement was...

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