Collins v. Comm'r of Internal Revenue
| Decision Date | 30 June 1966 |
| Docket Number | Docket No. 2871-65. |
| Citation | 46 T.C. 461 |
| Parties | GEORGE F. COLLINS, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Donald P. Moyers and William A. Goffe, for the petitioner.
J. C. Linge, for the respondent.
A transfer by petitioner of stock in a closely held corporation to his wife under a property settlement agreement incident to a divorce granted by an Oklahoma court constituted such a disposition of property as to result in petitioner's receiving a taxable gain in the amount of the difference in his basis in the stock and the fair market value of the stock on the date of the transfer. The fair market value of the stock transferred is determined from the evidence.
Respondent determined a deficiency in petitioner's income tax for the calendar year 1959 in the amount of $220,046.20. The issues for decision are whether a transfer of appreciated stock in a family-held corporation by petitioner to his wife pursuant to an agreement incident to a divorce granted in Oklahoma was a nontaxable division of property or a taxable transfer and, if the latter, the fair market value of the stock on the date of transfer.
Some of the facts have been stipulated and are found accordingly.
George F. Collins, Jr., hereinafter referred to as petitioner, resides in Tulsa, Okla. He filed his individual Federal income tax return for the calendar year 1959 with the district director of internal revenue at Oklahoma City, Okla.
Petitioner married Beverley R. Lorton (hereinafter referred to as Beverley) of Atlanta, Ga., on July 2, 1942. Beverley, a widow, had a son, born in 1937 of her first marriage, whom petitioner adopted. Beverley possessed assets not in excess of $10,000 in value when she married petitioner. Three children were born of the marriage of petitioner and Beverley, all of whom were minors in 1959.
During his marriage, petitioner was the controlling shareholder, president, and chief executive officer of Liberty Glass Co. (hereinafter referred to as Liberty).
Beverley was not actively employed in petitioner's business enterprises during her marriage to petitioner, but she entertained business visitors frequently at home and attended conventions with her husband where she helped in the entertainment of customers and others with whom Liberty had business relationships. Some of these individuals were also personal friends and acquaintances of petitioner's and Beverley's. Beverley was interested in the success of her husband's business enterprises. She made every effort to conduct herself in such a manner as to assist her husband in his business efforts. Petitioner often discussed his business activities with Beverley.
On April 20, 1959, petitioner and Beverley, having decided they could not continue their marriage relationship, entered into an agreement settling their property rights and providing for custody of the children and support and maintenance for Beverley and the children.
Before negotiations were begun concerning the property settlement, Beverley instructed her attorney that she desired as much monthly alimony as she could get and a million dollars in cash. Beverley's attorney proposed a settlement providing that petitioner pay alimony of $3,000 per month to Beverley for 240 months, pay $250 per month as support for each child until the child reached 21, and transfer to Beverley the following property:
Country Club membership, and
Any two of three cars (or equivalent).
Under this proposal Beverley would agree to transfer to petitioner all insurance on petitioner's life, and her 10-percent stockholding in Red Ball, Inc., a corporation in which a trust for the children of petitioner and Beverley owned 88 percent of the stock and petitioner 2 percent. Certain other minor provisions were included in this proposal.
The proposal that petitioner transfers a 33-percent interest in Liberty to Beverley was coupled with a provision that she have the right to resell the stock to petitioner for $1,750,000. This proposal was not accepted by petitioner and negotiations between the attorneys for Beverley and petitioner continued for about a month.
After tentative agreement was reached between the attorneys for Beverley and petitioner, Beverley's attorney prepared a draft of an agreement. On April 20, 1959, the parties signed an agreement which provided in part as follows:
WHEREAS, it is the desire of both parties (subject to the contingency of court approval as set out below) to finally and for all times settle and determine their property rights, any right of support and maintenance of said Second Party by the First Party, together with all other rights existing between the parties growing out of their said marriage relation;
THEREFORE, the said parties hereto, for and in consideration of the mutual promises herein made, covenant and agree as follows:
1. The First Party (petitioner) will pay to the Second Party (Beverley) the sum of $110,000.00 in cash within 30 days from the date of this contract.
2. The First Party will pay to the Second Party as alimony the sum of $40,000.00 per year for ten years, and thereafter the sum of $35,000.00 per year for ten years and thereafter the sum of $30,000.00 per year during the Second Party's lifetime; provided
(b) In the event of the remarriage of Second Party, all payments falling due thereafter shall be reduced to fifty per cent (50%) of the amount thereof; and
3. First Party will transfer and deliver or cause to be transferred and delivered to the Second Party stock certificates evidencing the ownership of record on the books of the company in Second Party of 26,592 shares of the common capital stock of Liberty Glass Company, a corporation; and the First Party warrants * * * that such shares equal 16.62% of the total outstanding common stock of Liberty Glass Company.
4. The First Party will transfer and deliver or cause to be transferred and delivered to the Second Party with full ownership thereof in the Second Party the following items of property:
(a) All life insurance which the First Party owns on the Second Party's life.
(b) A Proprietary or Associate Membership (or cash of $3,050.00 for purpose of buying such membership) in Southern Hills Country Club, * * *
(c) All furniture and furnishings and household items in the home at 2211 East 41st Street, except
(d) Any two of the present three automobiles * * * now used by the family, or at First Party's election any one of such three cars plus a new station wagon automobile * * *
5. All jewelry, clothing and furs worn or used by Second Party shall be retained by Second Party and shall be her sole, separate and individual property, free of all claims of First Party.
6. The Second Party will transfer and deliver or cause to be transferred and delivered to the First Party with full ownership thereof in the First Party the following items of property;
(a) All life insurance which the Second Party owns on the First Party's life.
(b) All common stock in Red Ball, Inc., a corporation, now owned of record by Second Party.
7. All property, real or personal (other than that herein specifically agreed to be given to First Party) standing or owned of record in the name of Second Party shall belong to Second Party absolutely as her sole, separate and individual property, free, clear and discharged of all claims of First Party.
8. All property, real or personal, standing or owned of record in the name of First Party (save and except only that property specifically agreed herein to be paid, conveyed or delivered to Second Party) shall belong absolutely to First Party as his sole, separate and individual property, free, clear and discharged of all claims of Second Party.
11. Second Party, in consideration of the execution of this Agreement and of the conveyance and payments agreed to be made to her agrees to accept and does hereby accept the same in full, final and complete settlement of all the rights of Second Party of any and every character which she may have or might otherwise have in and to the property of the parties, and in full, final and complete settlement of all claims which she may now have against First Party arising from or incident to the marriage relation, including, but not limited to, claims for division of property, alimony, support or maintenance.
13. An action for divorce is contemplated by Second Party and it is agreed by the parties hereto that this Agreement shall be submitted to the Judge of the District Court having jurisdiction of such action for his approval. It is further agreed that this Agreement is subject to and contingent upon approval by said Court. * * *
14. The parties hereto have four children, namely, Robert Lorton Collins (adult), George Fulton Collins, III (age 15), Beverley Rogers Collins, Jr. (age 13) and Roger Buckner Collins (age 6). In the event a divorce be granted to either party hereto, the parties hereto agree to recommend to the Court having jurisdiction the following with respect to the custody, care and support of said children:
(b) First Party shall pay to the Second Party the sum of $175.00 per month per minor child during each calendar month that the child spends at least 20 days living with her or at home, commencing May 1, 1959, and terminating as to each child either when such child reaches age 21 or is married.
(c) First Party shall pay all reasonable and necessary expenses of each child (including the son Robert for one semester) while away from home at any preparatory school or college or university * * *
(d) First Party shall pay the tuition of the children Beverley and Roger while attending Holland Hall School in Tulsa, Oklahoma, or its successor.
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