Burnet v. Logan Same v. Bruce
| Decision Date | 18 May 1931 |
| Docket Number | 522,Nos. 521,s. 521 |
| Citation | 283 U.S. 404,75 L.Ed. 1143,51 S.Ct. 550 |
| Parties | BURNET, Commissioner of Internal Revenue v. LOGAN. SAME v. BRUCE |
| Court | U.S. Supreme Court |
[Syllabus intentionally omitted] The Attorney General and Mr. G. A. Youngquist, Asst. Atty. Gen., for petitioner.
[Argument of Counsel from pages 404-407 intentionally omitted] Messrs. John Enrietto, of Washington, D. C., and Herbert C. Smyth, of New York City, for respondent Logan.
[Argument of Counsel from pages407-409 intentionally omitted] Mr. Raymond B. Goodell, of New York City, for respondent Bruce.
These causes present the same questions. One opinion, stating the essential circumstances disclosed in No. 521, will suffice for both.
Prior to March, 1913, and until March 11, 1916, respondent, Mrs. Logan, owned 250 of the 4,000 capital shares issued by the Andrews & Hitchcock Iron Company. It held 12 per cent. of the stock of the Mahoning Ore & Steel Company, an operating concern. In 1895 the latter corporation procured a lease for 97 years upon the 'Mahoning' mine and since then has regularly taken therefrom large, but varying, quantities of iron ore-in 1913, 1,515,428 tons; in 1914, 1,212,287 tons; in 1915, 2,311,940 tons; in 1919, 1,217,167 tons; in 1921, 303,020 tons; in 1923, 3,029,865 tons. The lease contract did not require production of either maximum or minimum tonnage or any definite payments. Through an agreement of stockholders (steel manufacturers), the Mahoning Company is obligated to apportion extracted ore among them according to their holdings.
On March 11, 1916, the owners of all the shares in Andrews & Hitchcock Company sold them to Youngstown Sheet & Tube Company, which thus acquired, among other things, 12 per cent. of the Mahoning Company's stock and the right to receive the same percentage of ore thereafter taken from the leased mine.
For the shares so acquired, the Youngstown Company paid the holders $2,200,000 in money, and agreed to pay annually thereafter for distribution among them 60 cents for each ton of ore apportioned to it. Of this cash Mrs. Logan received 250/4000-$137,500; and she became entitled to the same fraction of any annual payment thereafter made by the purchaser under the terms of sale.
Mrs. Logan's mother had long owned 1,100 shares of the Andrews & Hitchcock Company. She died in 1917, leaving to the daughter one-half of her interest in payments thereafter made by the Youngstown Company. This bequest was appraised for federal estate tax purposes at $277,164.50.
During 1917, 1918, 1919, and 1920 the Youngstown Company paid large sums under the agreement. Out of these respondent received on account of her 250 shares $9,900 in 1917; $11,250 in 1918; $8,995.50 in 1919; $5,444.30 in 1920-$35,589.80. By reason of the interest from her mother's estate, she received $19,790.10 in 1919, and $11,977.49 in 1920.
Reports of income for 1918, 1919, and 1920 were made by Mrs. Logan upon the basis of cash receipts and disbursements. They included no part of what she had obtained from annual payments by the Youngstown Company. She maintains that until the total amount actually received by her from the sale of her shares equals their value on March 1, 1913, no taxable income will arise from the transaction. Also that, until she actually receives by reason of the right bequeathed to her a sum equal to its appraised value, there will be no taxable income therefrom.
On March 1, 1913, the value of the 250 sharesthen held by Mrs. Logan exceeded $173,089.80-the total of all sums actually received by her prior to 1921 from their sale ($137,500 cash in 1916, plus four annual payments amounting to $35,589.80). That value also exceeded original cost of the shares. The amount received on the interest devised by her mother was less than its valuation for estate taxation; also less than the value when acquired by Mrs. Logan.
The Commissioner ruled that the obligation of the Youngstown Company to pay 60 cents per ton has a fair market value of $1,942,111.46 on March 11, 1916; that this value should be treated as so much cash, and the sale of the stock regarded as a closed transaction with no profit in 1916. He also used this valuation as the basis for apportioning subsequent annual receipts between income and return of capital. His calculations, based upon estimates and assumptions, are too intricate for brief statement.1 He made deficiency assessments according to the view just stated, and the Board of Tax Appeals approved the result.
The Circuit Court of Appeals held that, in the circumstances, it was impossible to determine with fair certainty the market value of the agreement by the Youngstown Company to pay 60 cents per ton. Also that respondent was entitled to the return of her capital-the value of 250 shares on March 1, 1913, and the assessed value of the interest derived from her mother-before she could be charged with any taxable income. As this had not in fact been returned, there was no taxable income.
We agree with the result reached by the Circuit Court of Appeals.
The 1916 transaction was a sale of stock-not an exchange of property. We are not dealing with royalties or deductions from gross income because of depletion of mining property. Nor does the situation demand that an...
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