Brunton v. Commissioner of Internal Revenue, 6046.

• Decision Date: 14 July 1930
• Docket Number: No. 6046.,6046.
• Citation: 42 F.2d 81
• Parties: BRUNTON v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

42 F.2d 81 (1930)

BRUNTON v. COMMISSIONER OF INTERNAL REVENUE.

No. 6046.

Circuit Court of Appeals, Ninth Circuit.

July 14, 1930.

Lynden Bowring, of Los Angeles, Cal., for petitioner.

G. A. Youngquist, Asst. Atty. Gen., J. Louis Monarch, Sp. Asst. to Atty. Gen., E. Riley Campbell, Sp. Atty., Bureau of Internal Revenue, and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, both of Washington, D. C., and John Vaughan Groner, Sp. Asst. to Atty. Gen., for respondent.

Before RUDKIN, DIETRICH, and WILBUR, Circuit Judges.

DIETRICH, Circuit Judge.

Much of the record is irrelevant to the question submitted, and a brief statement of the facts, none of which is controverted, will suffice. Appellant, as executrix of the estate of Robert Brunton, deceased, complains of an assessment of income taxes against decedent for 1921, originally made by the appellee and later approved by the Board of Tax Appeals, from whose order the appeal is prosecuted. The precise question is whether a stated gain or profit realized by the decedent upon the sale by him of certain corporate securities referred to as voting trust certificates, representing 1,231 shares of the capital stock of the Robert Brunton Studios, Inc., was returnable for assessment purposes for the year 1921, as appellee held, or for 1922, as appellant contends.

On October 20, 1921, the deceased gave to one Levee a written option to purchase these certificates, together with 125 shares of the stock of the same corporation not in the voting trust, the same to be exercised not later than December 20, 1921. Before the time elapsed the deceased learned that in all probability Congress would amend the law so as to reduce the rates of taxation on incomes for the following year, but whatever may have been the motives or actuating considerations of the parties, the option was permitted to lapse on December 20th, and on that day a new contract was made, under the terms of which a sale of both items of securities was agreed upon at the same prices specified in the option. With the 125 shares, admittedly sold outright and forthwith delivered and paid for, we are not concerned. The trust certificates for the 1,231 shares decedent agreed to sell and Levee to buy at $45 per share net, the "purchase to be consummated and said purchase price paid on the 28th day of March 1922." The certificates were to be and, in fact, were immediately delivered to Levee, regularly indorsed in blank by the deceased, but with the stipulation that, until full payment therefor was made, they should not be "registered as transferred upon the transfer books" of the trustees. And, at the same time, the deceased agreed to give and gave Levee an unlimited "irrevocable proxy and power of attorney (with full power of substitution in whole or in part) in any matter and for any and all purposes, to vote upon the said Trust Certificates and otherwise control the action of said Trustees, and their agents, with respect thereto, and the beneficial interest in said stock represented thereby, and to the same extent as the first party might or could do if this agreement had not been made," to remain in full force to and including March 28, 1922. Pursuant to another provision of the agreement, Levee simultaneously deposited with the bank, as "pledge holder," $48,150, par value, Liberty Loan bonds, with partially matured interest coupons attached and a promissory note of a third party for $8,000, with guaranty of payment by Levee indorsed thereon, as collateral security, for the benefit of the decedent and for his assurance that he (Levee) would fully perform his obligations and pay the purchase price as stipulated. By the terms of the agreement authority also was expressly conferred upon the pledge holder to liquidate, and apply, the proceeds of the collateral in case of any default upon Levee's part. In fact, the full purchase price was paid by Levee, in money, on March 28, 1922.

It is to be conceded that the contract is not to be deemed ineffectual merely because the purpose of the decedent may have been to avoid the heavier tax rate of 1921. United States v. Isham, 84 U. S. (17 Wall.) 496, 21 L. Ed. 728; Haverty v. United States (D. C.) 286 F. 985; Fraser v. Nauts (D. C.) 8 F.(2d) 106. But in interpreting an equivocal transaction motives may be considered as bearing on the real nature thereof. Wehe v. McLaughlin (C. C. A.) 30 F.(2d) 217; Texas & N. O. R. Co. v. Brotherhood, etc. (U. S. Sup. Ct. May 26, 1930), 50 S. Ct. 427, 74 L. Ed. 1034. In the decedent's motive we probably find explanation for that phase of the contract by which it was attempted to give to the transaction the appearance of a sale on March 28, 1922, rather than on December 20, 1921; but, notwithstanding such purpose and effort, we must consider what in substance he actually did and the legal effect thereof. In terms, at least,...