Weil v. Commissioner of Internal Revenue

Decision Date04 April 1936
Docket NumberNo. 7776.,7776.
Citation82 F.2d 561
PartiesWEIL v. COMMISSIONER OF INTERNAL REVENUE.
CourtU.S. Court of Appeals — Fifth Circuit

Richard T. Rives, of Montgomery, Ala., and Paul F. Myers and John R. Yates, both of Washington, D. C., for petitioner.

Helen R. Carloss, Sewall Key, and Ellis N. Slack, Sp. Assts. to the Atty. Gen., Frank J. Wideman, Asst. Atty. Gen., and Robert H. Jackson, Asst. Gen. Counsel, Bureau of Internal Revenue, and Harry F. Morton, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.

Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.

SIBLEY, Circuit Judge.

Twelve hundred shares of common stock of the Coca-Cola Company previously belonging to the taxpayer, Adolph Weil, were sold during October and November, 1930, at a large profit above their cost, and the proceeds were put to the credit of his four children on the books of Weil Brothers, a firm of which the taxpayer is a member. He contends that he is not taxable upon this profit as his income, because before the sale he had given the stock to his four minor children and the profit, when realized, was their income. The Board of Tax Appeals concludes its finding of fact thus: "From all the facts in the record we find that petitioner gave to his children the proceeds from the sale of the 1,200 shares of Coca-Cola stock, and not the shares."

The Commissioner contends that this is the ultimate fact found by the Board, and that since the evidence has not been brought up, this court cannot inquire whether the finding is correct. The above quotation is preceded by more than eight pages of detailed fact findings on which the final conclusion is based. We think them the equivalent of a special verdict, and that we may test by them the correctness of the general fact conclusion, especially since that conclusion uses the word "gave" which connotes ingredients of law. The legal elements of a gift are discussed immediately afterwards in the opinion of the Board. We will consider whether the special facts found support the general conclusion.

Much condensed, these facts are that about October 1, 1930, Weil took from among his certificates of Coca-Cola stock, which he held in a safety deposit box in a bank in Montgomery, eight certificates of 100 shares each, and without indorsing them, so far as he could remember, he placed two certificates in each of four envelopes bearing severally the names of his four minor children in which he kept other securities belonging to them, and put the envelopes back in the box, preserving a memorandum of the certificate numbers. On returning to his office, he or his stenographer made entries of them on a loose-leaf memorandum book which showed the various securities owned by his children. On October 9, 1930, Weil telephoned the manager of the New York office of his firm to sell for his children 200 shares each of Coca-Cola common stock, that the stock was theirs and he would deliver it, and to place the proceeds to their credit. Accordingly, a stockbroker on that date sold the shares and entered one-fourth of the proceeds to the credit of each of the four children by name. It does not appear that the broker knew the persons named were minors. In pursuance of this sale, and on the same day, Weil sent the certificates, now duly indorsed, to the New York office in a letter stating that they were for delivery against the sale and that the proceeds were to be credited as before explained by telephone. In due course the broker gave a receipt for the stock to Weil Brothers for account of the four children, and paid Weil Brothers the proceeds, which were put to the credit of the several children as directed. On November 1, 1930, Weil proceeded in exactly the same way to dispose of 400 shares more, the broker selling them on November 11th and the proceeds going to the credit of the children on the firm's books. The credits were thus carried at 6 per cent. interest for several years, Weil withdrawing nothing except for investment for the children, income taxes and the like. There is a finding "At the time he made the alleged gift of stock to his children in 1930 he told the executors and trustees of his will about it." It does not appear what he said to them, or that he delivered anything to them, or that his communication was prior to the several sales. Each child from repeated gifts has an estate of from ninety to one hundred thousand dollars. Weil has never taken back any of his gifts. He did not have the Coca-Cola certificates transferred to them on the books of the company as he expected to sell them and wished to avoid the expense of the transfer. He has never been appointed guardian for his children's estates. The profit on these sales was returned by him as income of the children, but the Commissioner held there was a corresponding over-payment by the children and that the profit was to be taxed to Weil.

We think the controlling fact is that Weil purposed all the time to sell the stock and kept control of it to do so. He was not the guardian of the children, and it is conceded that under the law of Alabama he could not sell the property of his minor children. It is plain that he intended to give his children the benefit of the stock, and perhaps went to great pains to make it appear that he had done so before the profit was realized which would be taxed in solido if his, but in separate parts and less severely if his children's; but all the time he intended to and did maintain dominion and control over the stock so as to sell it. Prior to the several sales, the certificates sold never passed out of his custody into the control of any other person; they were never indorsed to the children or put in their names, nor was any writing signed and delivered by him purporting to convey them. This retention of control for the purpose of exercising dominion over them by sale is inconsistent with a present absolute gift, the legal result of which would have been to prevent a sale. In Basket v. Hassell, 107 U.S. 602, 614, 2 S.Ct. 415, 422, 27 L.Ed. 500, after a full review of the cases touching gifts, it is said: "A certificate of deposit is a subsisting chose in action and represents the fund it describes, as in cases of notes, bonds, and other securities, so that a delivery of it, as a gift, constitutes an equitable assignment of the money for which it calls. The point * * * as to the nature and effect of a delivery of a chose in action, is, as we think, that the instrument or document must be the evidence of a subsisting...

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