Blum v. Helvering, 6236-6239.
| Decision Date | 03 December 1934 |
| Docket Number | No. 6236-6239.,6236-6239. |
| Citation | 74 F.2d 482 |
| Parties | BLUM v. HELVERING, Com'r of Internal Revenue. ALSTRIN v. SAME. STEIN v. SAME (two cases). |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Preston B. Kavanagh, of Washington, D. C., and S. Sidney Stein, of Chicago, Ill., for petitioners.
Frank J. Wideman, Sewall Key, Robert H. Jackson, Chester A. Gwinn, and J. P. Jackson, all of Washington, D. C., for respondent.
Before MARTIN, Chief Justice, and ROBB, VAN ORSDEL, and GRONER, Associate Justices.
Petitioners, partners under the name of Stein, Alstrin & Co., were engaged in the stock and bond brokerage business, and were members of the New York and Chicago Stock Exchanges. On September 23, 1924, a preliminary underwriting agreement was entered into between themselves, as bankers, and Sidney C. Anschell, as owner of substantially all of the capital stock of Universal Theaters Concession Company. The contract contemplated that petitioners would investigate the legal, financial, and physical conditions of the company, and, if found satisfactory, would notify Anschell, who would then cause the corporation to be reorganized and would cause to be sold to petitioners 40,000 shares of class A stock at $20 for each share. The investigation was made, and presumably the report was satisfactory, for on October 7, 1924, the preliminary agreement was merged into two contracts. The first of these provided that the reorganized corporation would sell, and petitioners would buy, 40,000 shares of class A stock at the agreed price, conditioned only that petitioners should satisfy themselves that they would succeed in having the shares of stock regularly listed on the Chicago Stock Exchange. The second recited that, in order to facilitate an open market for the shares of stock to be purchased, Anschell as seller would contribute $50,000 to the capital of a six months' trading account or pool to be conducted through petitioners. Petitioners, likewise to promote and facilitate the operations of the pool, agreed to contribute thereto so much money as should in their opinion be necessary, not to exceed, however, a like sum of $50,000. The profits of the trading account were to go half and half to Anschell and petitioners, and the loss, if any, to be divided equally. The stock was listed and admitted to trading on the stock exchange as of November 7, 1924, but prior to that date petitioners had paid for and taken over the 40,000 shares of stock, which in turn they had sold to their customers at a profit to themselves of $280,209.21.
In computing the distributable income of the partnership for the year 1924, the Commissioner included the sum of $280,209.21, and in computing the taxable net income of each of the petitioners he included the proportionate share of the profits of this transaction which each petitioner, under the partnership articles, was entitled to and did receive. Petitioners contend the Commissioner was wrong, because the transaction was not completed in 1924 so as to be taxable as to profits in that year. They tell us that, under the agreement by which they sold and distributed the stock to their numerous customers, there was an agreement that the stock would be listed on the exchange and that under the rules of the exchange no new stock could be listed until satisfactory arrangements were made to insure free and open trading in the market. Therefore they say that the trading pool or syndicate which they agreed to operate and support demanded and required a secondary distribution of the stock, and that in the performance of this service, which was obligatory on them as a part of their original contract of purchase, and likewise impliedly as a part of their contracts of sale, they sustained a loss in 1925 of $434,173.
Summarized, the argument is: First, that petitioners would not have purchased the 40,000 shares of stock if the same had not been listed and admitted to trading on the Chicago Stock Exchange; second, that the stock exchange would have refused to list the stock unless assured that proper arrangements had been made to insure a market for the sale of the stock when holders desired to sell and a reasonable offering of stock when purchasers desired to buy; and, third, that petitioners' purchasers, i. e., their customers, would not have purchased any of the stock except for petitioners' undertaking to have the stock listed on the...
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