Chandler v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 67468-67476.
| Citation | 32 BTA 720 |
| Decision Date | 07 June 1935 |
| Docket Number | Docket No. 67468-67476. |
| Parties | MARIAN OTIS CHANDLER, PETITIONER, ET AL., v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
A. Calder Mackay, Esq., and George M. Thompson, Esq., for the petitioners.
M. B. Leming, Esq., for the respondent.
These proceedings were brought to redetermine deficiencies in the income taxes of the petitioners for the year 1929 in the following amounts:
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Petitioner | Docket | Deficiency
| no. |
-----------------------------------------------------|--------|-------------
Marian Otis Chandler _______________________________ | 67468 | $163,175.03
Ruth Chandler Williamson ___________________________ | 67469 | 24,466.69
Harrison Gray Chandler _____________________________ | 67470 | 17,915.53
Constance Chandler _________________________________ | 67471 | 17,515.10
May Chandler Goodan ________________________________ | 67472 | 29,620.90
Norman Chandler ____________________________________ | 67473 | 19,235.24
John L. Kirkpatrick ________________________________ | 67474 | 28,721.39
Helen Chandler _____________________________________ | 67475 | 17,522.91
Philip Chandler ____________________________________ | 67476 | 17,587.26
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Two issues are presented:
(1) Was the transaction by which petitioners exchanged certain notes and interest for stock consummated in 1929 or 1930?
(2) Did the petitioners realize taxable income by reason of such exchange?
The facts were stipulated in part and in part adduced by testimony.
In 1916 Harry Chandler incorporated the Chandis Securities Co., hereinafter called the company, with a capital stock of 500 shares of the par value of $1,000 per share, for which stock he transferred to it certain real and personal property. He transferred 200 of such shares to his wife, Marian Otis Chandler, and 280 shares thereof to his children, all of whom are petitioners. Later he transferred other properties to the company for its promissory notes, which he assigned to his wife and children in approximately the same proportion as their stockholdings. The notes so assigned and interest accrued to December 31, 1923, were in the following amounts:
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| Note | Accrued interest
| principal | to Dec
| | 31, 1923
------------------------------------------------|--------------|-----------------
Marian Otis Chandler __________________________ | $810,687.06 | $294,950.76
Franceska Chandler Kirkpatrick ________________ | 179,490.04 | 66,533.84
May Chandler Goodan ___________________________ | 179,490.04 | 66,533.83
Helen Chandler ________________________________ | 130,474.68 | 45,648.37
Philip Chandler _______________________________ | 130,474.68 | 45,648.36
Ruth Chandler Williamson ______________________ | 130,474.69 | 45,648.36
Harrison Gray Chandler ________________________ | 130,474.68 | 45,648.36
Constance Chandler ____________________________ | 130,474.70 | 45,648.37
Norman Chandler _______________________________ | 116,508.03 | 45,789.36
|______________|_________________
Total ____________________________________ | 1,938,548.60 | 702,049.61
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On December 31, 1923, the Chandis Securities Co. issued new notes for the foregoing notes and accrued interest to the petitioners, which notes and interest accrued to December 31, 1929, were as follows:
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| Note principal | Accrued interest
| | to Dec
| | 31, 1929
------------------------------------------------|----------------|-----------------
Marian Otis Chandler __________________________ | $1,105,637.82 | $366,418.80
Franceska Chandler Kirkpatrick ________________ | 246,023.88 | 81,991.18
May Chandler Goodan ___________________________ | 246,023.87 | 81,991.18
Helen Chandler ________________________________ | 176,123.05 | 58,218.25
Philip Chandler _______________________________ | 176,123.04 | 58,218.26
Ruth Chandler Williamson ______________________ | 176,123.05 | 58,218.26
Harrison Gray Chandler ________________________ | 176,123.04 | 58,218.26
Constance Chandler ____________________________ | 176,123.07 | 58,218.26
Norman Chandler _______________________________ | 162,297.39 | 53,516.22
| ______________ | _________________
Total ____________________________________ | 2,640,598.21 | 875,003.67
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On October 14, 1929, the board of directors of the company passed a resolution increasing its capital stock from 500 shares of the par value $1,000 per share to 50,000 shares of the par value of $100 per share and, pursuant thereto, filed the certificate reciting such action, as required by the state statute.
On December 18, 1929, the board of directors of the company passed a resolution authorizing the company's officers to apply to the Corporation Commissioner of the State of California for permission to sell or issue 40,000 shares of its capital stock at par to liquidate the indebtedness of the company to its stockholders represented by the above notes. The resolution contained the following recitals and provisions:
WHEREAS, Chandis Securities Company is indebted to the following named persons, to-wit:
Marian Otis Chandler Franceska C. Kirkpatrick May O. Goodan Helen Chandler Philip Chandler Ruth C. Williamson Harrison G. Chandler Constance Chandler ...
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