Buck v. COMMISSIONER OF INTERNAL REVENUE, 8061.
| Decision Date | 04 May 1936 |
| Docket Number | No. 8061.,8061. |
| Parties | BUCK et al. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Norman A. Eisner, of San Francisco, Cal., for petitioners.
Robert H. Jackson, Asst. Atty. Gen., Sewall Key, John M. Hudson, and Edward F. McMahon, Sp. Assts. to the Atty. Gen., and E. W. Pavenstedt, of Washington, D. C., for respondent.
Before WILBUR, MATHEWS, and HANEY, Circuit Judges.
Petitioners have asked review of an adverse decision of the Board of Tax Appeals assessing deficiencies disclosed by an examination of their income tax returns for the year 1929. The petitioners filed separate petitions before the Board, but the proceedings were consolidated.
From the Board's opinion it appears that on or about January 31, 1929, petitioners each owned approximately one-third of the outstanding stock of the Industrial Solvents Corporation of California; each owned stock of the Mason By-Products Company; each owned an interest in a promissory note for $388,087.50 owing by the last-named company which was secured by a deed of trust on all that company's property, and which was payable to the estate of John A. Buck, Sr. Petitioners' interests in the note was bequeathed to them by the will of John A. Buck, Sr.; two of the petitioners each thereby acquiring a one-eighth interest in the note and the other petitioner thus acquiring a one-half interest in said note. The value of the note for estate tax purposes was placed at $45,389.70.
On January 31, 1929, petitioners entered into an agreement with W. S. Kies & Co., designated as the banker, and American Commercial Alcohol Corporation of Maryland, designated as the buyer. Under this agreement petitioners agreed to sell all the outstanding capital stock of Industrial Solvents Corporation of California, and cause all the assets of the latter corporation, except accounts receivable, to be transferred to the buyer, together with the secured note above mentioned. Petitioners were to receive cash equivalent to the value of current net assets, excluding accounts receivable, of the Industrial Solvents Corporation of California, and either 4,800 shares of 7 per cent. cumulative preferred stock of the buyer, or, at the option of the petitioners, 8,000 shares of common stock of the buyer. The option required election within six months, and was to be evidenced by a due bill. It is unnecessary to relate other details of the agreement.
Of the property to be received by petitioners, they allocated 1,250 shares of the common stock of the buyer as payment for the secured note, above mentioned, and about a month later, when the contract was consummated, the banker agreed to purchase the 1,250 shares so allocated at a price of $77 per share, as part consideration of the performance of the agreement, and the banker did purchase such shares about April 15, 1929. Petitioners elected to receive common stock of the buyer in June, 1929, and shortly thereafter petitioners received voting trust certificates for the common stock. These certificates were issued pursuant to the terms of the agreement, and represented 8,000 shares of common stock of the buyer, less the 1,250 shares sold to the banker, plus a stock dividend.
Petitioners did not include as income the value of the buyer's stock so received in their returns for the year 1929. Respondent assessed deficiencies on the returns by computing the value of the stock at $86.50 per share. His conclusion was based on stock market quotations, stating that "the last sale on March 1, 1929 was 5,500 shares at $86.75." The Board found that the fair market value of the shares was $77 per share, saying that "the sale of 1,250 shares at $77 per share, cash, at sometime between February 28, 1929 and April 15, 1929, is the best evidence of record of the fair market value of the shares received by the" petitioners.
Revenue Act of 1928, c. 852, § 111 (c), 45 Stat. 815, 26 U.S.C.A. § 111 (b) and note, provides: "The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received."
We are not concerned with the cost of the property sold, for the purpose of computing the capital gain, but, as both parties concede, the sole inquiry is whether or not there is any substantial evidence to support the finding by the Board of the fair market value of the stock received by petitioners at the time of the performance of the agreement.
Only one witness appeared before the Board. Other than the evidence of the isolated sale to the banker of the 1,250 shares, there was practically no evidence as to the fair market value of the stock. The witness, who was one of the petitioners, testified:
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