53 T.C. 185 (1969), 3190-67, Currie v. Commissioner of Internal Revenue
|Docket Nº:||3190-67, 3226-67, 3227-67.|
|Citation:||53 T.C. 185|
|Opinion Judge:||KERN, Judge:|
|Party Name:||FRANCIS C. CURRIE AND ELEANOR B. CURRIE, ET AL., PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT|
|Attorney:||William Waller, for the petitioners. Jack D. Yarbrough, for the respondent.|
|Case Date:||November 10, 1969|
|Court:||United States Tax Court|
The petitioners were members of a syndicate formed in mid-1962 for the purpose of acquiring, holding, and eventually selling at a profit 51 percent of the common stock of a stock and mutual life insurance company. At that time, the syndicate acquired from another syndicate (of which petitioners were also members) an option to buy the stock. Both syndicates were organized and controlled by an individual active in the securities business who was a specialist in the field of insurance securities. The second syndicate immediately exercised the option and purchased the stock. In mid-1963, over 6 months after its acquisition, the syndicate sold some of the stock to a group of securities underwriters who, in turn, disposed of the stock in a public offering. Thereafter the syndicate was liquidated. Held: The stock was not property held for the sale to customers of either the syndicate or its members in the ordinary course of the trade or business of either; it was held as an investment. Therefore, the sale of the stock by the syndicate on behalf of its members was the sale of a capital asset.
Respondent determined the following income tax deficiencies for the calendar year 1963 in these consolidated cases:
Petitioners Docket Deficiency
Francis C. Currie and Eleanor B. Currie 3190-67 $32,148.92
James C. Bradford, Jr 3226-67 112,164.23
James C. Bradford and Eleanor A. Bradford 3227-67 748,816.32
The only issue for decision in each of the instant consolidated cases is whether the gain realized by petitioners on the sale on July 9, 1963, of shares of Northwestern National Life Insurance Co. common stock is taxable as ordinary income from the sale of ‘ property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business,' rather than as long-term capital gains as reported by petitioners on their respective income tax returns for the year 1963. The sale was made by a group who will sometimes hereinafter be referred to as the ‘ second syndicate,‘ in which one petitioner in each docket was a participant. These three cases, consolidated for trial and opinion, were tried on the same calendar with Joseph J. Turner, docket No. 1203-67, and Harry Lahman and Rose A. Lahman, docket No. 1971-67. These two Page 186 cases involve the same basic issue and, in the main, the same facts. The trial of the instant consolidated cases was confined by the parties to an opening statement by counsel for petitioners and brief testimony by petitioner James C. Bradford, who testified extensively in the Turner case. It was stipulated by the parties that the testimony and exhibits which were received in the trial of the Turner case would be received in the Lahman case and the instant consolidated cases subject to objections on grounds of relevancy and materiality. FINDINGS OF FACT Some of the facts are stipulated. They are found to be as stipulated and the stipulation, together with the exhibits identified therein, are incorporated herein by this reference. Petitioners filed their respective income tax returns for the year 1963 with the district director of internal revenue, Nashville, Tenn. Petitioners James C. and Eleanor A. Bradford are husband and wife. Eleanor A. Bradford is a party to this proceeding only because she filed a joint return with her husband. Petitioner James C. Bradford, Jr., is the son of James C. and Eleanor A. Bradford and is not married. At the time of filing his petition herein, James C. Bradford, Jr., resided with his parents in Nashville, Tenn. Petitioners Francis C. and Eleanor B. Currie are husband and wife, residing at the time they filed their petition herein in Memphis, Tenn. Francis C. Currie is a party to this proceeding only because he filed a joint return with his wife. Eleanor B. Currie is the daughter of James C. and Eleanor A. Bradford. Eleanor B. Currie is also the beneficiary of a trust created by James C. Bradford on December 10, 1957. The trustee of this trust (hereinafter sometimes referred to as the Currie Trust) is Eleanor A. Bradford. James C. Bradford handled his wife's business affairs, including the Currie Trust's participation in the transactions to be described below. A fiduciary return for the Currie Trust for the year 1963 was filed with the district director of internal revenue, Nashville, Tenn. The Currie Trust is a limited partner, and James C. Bradford and James C. Bradford, Jr., are general partners of J. C. Bradford & Co. and were such at all times here relevant. J. C. Bradford & Co. (sometimes hereinafter called Bradford & Co.) is a partnership engaged in the securities business, and is a member of the New York Stock Exchange. Bradford & Co. was a member of the National Association of Securities Dealers (hereinafter sometimes called the NASD) and has been registered with the Securities and Exchange Commission (hereinafter sometimes called the SEC) as a Page 187 broker-dealer at least since February 4, 1945. James C. Bradford (hereinafter sometimes called J. C.) is a senior and principal partner of Bradford & Co. J. C. has been in the securities business for 41 years. Bradford & Co. was formed in 1927 and first acquired its seat on the New York Stock Exchange in 1930. J. C. and Bradford & Co. have been very active in life insurance company stocks during the years J. C. and Bradford & Co. have been in business. J. C. has advertised Bradford & Co. as ‘ Specialists in Life Insurance Stocks' in a book entitled ‘ Security Dealers of North America,’ published semiannually by Standard & Poor's Corporation, which is circulated among securities dealers and in which securities dealers, underwriters, and investment bankers place advertisements. The names of the partners in Bradford & Co. during the years 1961, 1962, and 1963 are listed below. J. C. Einer Nielsen Kenneth H. Wood James C. Bradford, Jr. Mrs. Eleanor A. Bradford, trustee Gordon Brooks Gordon Duval David Steine A. S. Hill W. M. Robinson J. C. Bradford & Co., Inc. (hereinafter sometimes referred to as Bradford, Inc.), was incorporated under the laws of the State of Tennessee; and its principal office and place of business is located in Nashville, Tenn. All of the outstanding stock of Bradford, Inc., was owned by Bradford & Co. Bradford, Inc., was a member of the NASD and was registered with the SEC as broker-dealer in 1961. The corporation Bradford, Inc., was occasionally used as an underwriter of corporate securities. Bradford, Inc., was registered with the State of Tennessee regulatory agency as a broker-dealer. It was not a member of the New York Stock Exchange. During the years 1961, 1962, and 1963 the officers of Bradford, Inc., were as follows:
President J. C.
( Einer Nielsen
( Walter M. Robinson
( Kenneth H. Wool
Vice presidents ( Gordon Brooks
|( Gordon Duval |
( David Steine 
|( Albert S. Hill |
Secretary J. C. Bradford, Jr.
Treasurer Mary Smart
Aragon Corp. (hereinafter sometimes referred to as Aragon) is a Tennessee corporation; and its principal office and place of business is in Nashville, Tenn. All of the stock of Aragon is owned by the 418 Page 188 Union Street Corp., the stock of which, in turn, was owned by Eleanor A. Bradford, the wife of J. C., and by three partners of Bradford & Co. Nationwide Corp. (hereinafter sometimes referred to as Nationwide) was incorporated under the laws of the State of Ohio. Nationwide conducts a life insurance business. Its principal office was located in Columbus, Ohio. Nationwide owned or controlled several other life insurance companies during the years 1961 to 1963, inclusive. Northwestern National Life Insurance Co. of Minneapolis, Minn. (hereinafter sometimes referred to as Northwestern), was organized in 1885 under the laws of the State of Minnesota. Northwestern is a stock and mutual life insurance company and is controlled jointly be its stockholders and its mutual policyholders. Each participating policyholder has one vote for each $1,000 of life insurance carried. As of March 31, 1963, its life insurance in force exceeded.$2.7 billion and its total assets exceeded $420 million. During a period of approximately 2 months, i.e., in December 1956 and January 1957, Nationwide acquired approximately 51 percent of the outstanding common stock of Northwestern by purchase on the open market. It was acquired from small investors and from owners of large blocks of Northwestern stock. Murray D. Lincoln, the president of Nationwide, requested that J. C., as an official of Bradford & Co., assist Nationwide in its acquisition of the stock of Northwestern. J. C. was aware that there had been litigation between Nationwide and Northwestern after Nationwide's efforts to gain the proxies of Northwestern's participating policyholders. At that time J. C. believed that the dispute between Northwestern and Nationwide depressed the market price of Nationwide's stock. He believed that if Bradford & Co. acquired an option to purchase the Northwestern stock owned by Nationwide and it became known that Nationwide would no longer own stock in Northwestern, the price of Northwestern stock would rise...
To continue readingFREE SIGN UP