Burdick v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 21065.
| Decision Date | 10 September 1930 |
| Docket Number | Docket No. 21065. |
| Parties | HELENE BALDWIN BURDICK, EXECUTRIX, ESTATE OF JULIAN BURDICK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
W. A. Seifert, Esq., W. W. Booth, Esq., and A. G. Wallerstadt, C. P. A., for the petitioner.
Eugene Meacham, Esq., and C. E. Lowery, Esq., for the respondent.
In this proceeding the petitioner, Helene Baldwin Burdick, who is the executrix of Julian Burdick, deceased, seeks a redetermination of the decedent's income-tax liability for the calendar year 1923, for which year the respondent has determined a deficiency in the amount of $11,110.20.
The petitioner alleges that the respondent erred in failing to allow as a deduction from gross income for the taxable year 1923 the loss sustained by the taxpayer in the disposal of 1,041 shares of the capital stock of the Marf Machine & Die Casting Co., consisting of 600 shares of preferred stock and 441 shares of common stock. All the deficiency is based upon the disallowance of this alleged loss.
FINDINGS OF FACT.
The petitioner is the executrix of the estate of Julian Burdick, deceased, formerly of Breckenridge, Pa., who died April 21, 1929.
In May, 1920, the decedent purchased from the Marf Machine & Die Casting Co. all of its preferred stock, consisting of 600 shares of a par value of $60,000, and paid therefor $60,000 cash. At the same time he acquired 600 shares of the common stock from stockholders for $25,000 cash. Subsequently, decedent acquired 350 more shares of the common stock of said corporation, but there is no evidence to show what he paid for same and no loss is claimed in this proceeding because of the surrender of this 350 shares of common stock. The total outstanding common stock was 1,900 shares with a par value of $100 each, or a total of $190,000. In the fall of 1922 the company was in serious financial difficulties. Its preferred stock was all owned by the decedent, and of the 1,900 shares of common outstanding he owned 950 shares; Arvid Jansson, 475 shares; and Frank Cohen, 475 shares. Joel W. Burdick, the father of the decedent, held the company's note for $36,328.60; the decedent, a secured note for $25,000; and Arvid Jansson, a note for $2,000. One Louis C. Kunz was induced to contribute $40,000 to the corporation in consideration of certain things embodied in an agreement between him and the stockholders of the corporation. This agreement was dated November 28, 1922, and by its terms the Guaranty Trust Co. of New York was designated trustee to make disposition of the stock and $40,000 contributed by Kunz. The terms of the agreement were fully set out in a letter to the Guaranty Trust Co., dated November 28, 1922, and signed by all the parties to the agreement. The text of the letter in words and figures is as follows:
In accordance with an agreement entered into between them, the undersigned will make delivery to you of the following securities, notes and cash, to be held by you in escrow and to be delivered and expended by you as hereinafter provided.
The undersigned, Julian Burdick, will deliver certificates of the common stock of the Marf Machine & Die Casting Company, Inc. aggregating 950 shares, certificates of the preferred stock of said company, aggregating 600 shares, and notes of said company payable to him, aggregating $25,000.
The undersigned, Arvid Jansson, will deliver to you certificates for common stock of the Marf Machine & Die Casting Company, Inc. aggregating 475 shares.
The undersigned, Frank M. Cohen, will deliver to you certificates for the common stock of the Marf Machine & Die Casting Company, Inc. aggregating 475 shares.
Louis C. Kunz will pay you the sum of $40,000.
On receipt of the aforesaid certificates of stock, aggregating 1,900 shares of common and 600 shares of preferred, and said sum of $40,000, you will kindly purchase at par and accrued interest, on behalf of Louis C. Kunz, the notes of the Marf Machine & Die Casting Company, Inc. to Joel W. Burdick aggregating $36,328.60 and the note of said company to Arvid Jansson, for $2,000, applying so much of the above mentioned sum of $40,000 as may be necessary therefor. The balance of said $40,000 is to be paid by you to said Julian Burdick on account of interest due on the aforesaid notes of the Marf Machine & Die Casting Company, aggregating $25,000 belonging to him.
After the purchase of the aforesaid notes from said Joel W. Burdick and Arvid Jansson, Julian Burdick authorizes and directs you to surrender to the said Marf Machine & Die Casting Company, Inc., the aforesaid notes aggregating $25,000, payable to him, upon receipt by you from said Marf Machine & Die Casting Company, Inc., of new unsecured notes of said Company, payable to said Julian Burdick, aggregating $25,000 plus any interest at that time that may be unpaid on the notes now held by him, said new notes to bear interest at the rate of 6% and to be payable as follows: $5,200 6 months after date of delivery, $4,100 9 months after date of delivery, $5,200 12 months after date of delivery, $5,200 15 months after date of delivery, and balance 18 months after date of delivery.
After completion of the above transaction, you are hereby authorized and directed to distribute the 1900 shares of common stock, as aforesaid, as follows:
1425 shares to Louis C. Kunz, or his assigns 159 shares to Julian Burdick, or his assigns 158 shares to Arvid Jansson, or his assigns 158 shares to Frank M. Cohen, or his assigns.
The new notes of the aforesaid Marf Machine & Die Casting Company, Inc., payable to Julian Burdick to be delivered to him; provided, however, that the aforesaid distribution and delivery shall not be made prior to January 4th, 1923.
You are hereby expressly authorized and directed, at the completion of the above, to mark the aforesaid notes of the Marf Machine & Die Casting Company, Inc., payable to Joel W. Burdick and Arvid Jansson, "Paid" and deliver the same to said company for cancellation.
The undersigned have agreed to use their best efforts to have the said Marf Machine & Die Casting Company, Inc., reduce its capital stock by the cancellation of the aforesaid 600 shares of preferred stock, or if that be impracticable, to convert said 600 shares of preferred stock into 600 shares of common stock. If the reduction is accomplished, you are authorized to deliver such certificates for 600 shares of preferred stock to said Company for cancellation. If the said preferred stock is converted into common stock, you are authorized and directed to exchange said 600 shares of preferred stock for 600 shares of common stock and distribute said common stock, as follows:
9/12 of said 600 shares to Louis C. Kunz, or his assigns 1/12 of said 600 shares to Julian Burdick, or his assigns 1/12 of said 600 shares to Arvid Jansson, or his assigns 1/12 of said 600 shares to Frank M. Cohen, or his assigns.
If the undersigned are unable to effect the reduction of capital stock of said Company, as aforesaid, or to have said 600 shares of preferred stock converted into common stock, then you are authorized and directed to distribute said 600 shares of preferred stock, as follows:
9/12 of said 600 shares to Louis C. Kunz, or his assigns 1/12 of said 600 shares to Julian Burdick, or his assigns 1/12 of said 600 shares to Arvid Jansson, or his assigns 1/12 of said 600 shares to Frank M. Cohen, or his assigns.
Direction by Julian Burdick and Louis C. Kunz shall be your authority as to which of the above alternatives is to be carried out.
Julian Burdick agrees to pay to you the sum of $150, as your commissions for carrying out the above.
It is understood and agreed that you have no responsibility as to the carrying out of the agreement mentioned in the first paragraph of this letter, but that your duty shall be limited to carrying out the directions contained herein.
The undersigned further agree that you shall incur no liability in carrying out the above instructions except for negligence.
On December 7, 1922, the stock and cash were delivered to the Guaranty Trust Co. and between January 18 and April 2, 1923, the Guaranty Trust Co. delivered the stock and used the cash in accordance with the terms of the contract. The $40,000 delivered by Kunz to the Guaranty Trust Co. was used to pay the notes of Joel W. Burdick and Arvid Jansson and the balance, amounting to $985.16 was paid to Julian Burdick as interest on his note for $25,000.
The 600 shares of preferred stock which had on December 7, 1922, been delivered by Julian Burdick under the terms of the agreement to the Guaranty Trust Co. were delivered by it to Louis C. Kunz on April 2, 1923, and soon after he received it, Kunz had the Marf Machine & Die Casting Co. cancel and retire this stock, as was provided in the agreement.
On or about January 19, 1923, the following stock certificates, which the Guaranty Trust Co. had received from Julian Burdick, were returned to him:
No. C-42 for 1 share in the name of Joel W. Burdick No. C-56 for 135 shares in the name of Julian Burdick No. C-57 for 23 shares in the name of Julian Burdick ___ Total 159 shares
These 159 shares were subsequently sold by Burdick in 1927 for $50 per share, a total of $7,950.
The 159 shares of stock returned to Julian Burdick were part of the same certificates that had been included in the 950 shares of common stock transferred by him to the Guaranty Trust Co. Similar deliveries of 158 shares of common stock each were made to Arvid Jansson and Frank M. Cohen. These were a part of the same shares which they had originally turned over to the Guaranty Trust Co. under the terms of the escrow agreement.
On or about January 18, 1923, 1,425 shares of the common stock of the Marf Machine & Die Casting Co. were delivered to ...
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