O'CONNOR v. Scofield
| Decision Date | 28 March 1956 |
| Parties | Dennis M. O'CONNOR and Katherine O'Connor, Independent Executors of the Estate of Thomas O'Connor, Deceased, and Dennis M. O'Connor, Katherine O'Connor, Mary O'Connor Braman, joined herein by her husband, D. H. Braman, and Thomas O'Connor, Jr. v. Frank SCOFIELD, Former Collector of Internal Revenue. |
| Court | U.S. District Court — Western District of Texas |
J. P. Jackson of Robertson, Jackson, Payne, Lancaster & Walker, Dallas, Tex., for plaintiffs.
Andrew D. Sharpe, Charles Mehaffy, Dept. of Justice, Washington, D. C., Russell B. Wine, U. S. Atty., San Antonio, Tex., Lonny F. Zwiener, Asst. U. S. Atty., Austin, Tex., for defendant.
This case arises under the provisions of the Internal Revenue Code of 1939, 26 U.S.C.A. § 1 et seq. It involves income taxes together with interest paid by the Estate of Thomas O'Connor, Deceased, for the taxable year ended November 30, 1948.
The above-entitled action was tried without jury by the Court in San Antonio, Texas, on November 4, 1955.
The question involved in the case is as follows:
Were the plaintiffs taxable at long term capital gain rates or at ordinary income rates on the gain realized from the sale of an oil payment during the fiscal year ended November 30, 1948, to D. E. Blackburn?
The Court having considered the oral testimony, stipulated facts and the briefs of counsel and being fully advised otherwise in the premises, makes and enters the following findings of fact and conclusions of law.
1. Thomas O'Connor died testate in Victoria County, Texas, on December 5, 1946. Plaintiffs Dennis M. O'Connor and Katherine O'Connor, duly qualified as Independent Executors of the Estate of Thomas O'Connor, Deceased, and are now acting in such capacity. Plaintiffs Dennis M. O'Connor, Katherine O'Connor, Mary O'Connor Braman and Thomas O'Connor, Jr. are the sole heirs at law and devisees under the will of Thomas O'Connor, deceased. D. H. Braman is the husband of Mary O'Connor Braman.
2. In the fiscal year of the Estate ended November 30, 1948, to wit, on November 26, 1948, the Executors of the Estate transferred, by general warranty deed, certain royalty interests (subject to a reversionary interest, as hereinafter stated) to D. E. Blackburn of Victoria, Texas, for the cash consideration of $9,990,350. The deed making such transfer was delivered to D. E. Blackburn and duly recorded in the Deed Records of Refugio County, Texas, with some $10,000 in documentary stamps having been attached to the deed. Expenses attributable to the sale amounted to $10,990. The royalty interests sold to Blackburn had been held by decedent and subsequently by his Estate for many years. The properties sold to Blackburn had been held by plaintiffs in excess of six months.
3. If the gain from the transaction in question is properly taxable as income on the sale of a capital asset held for more than six months, and not as ordinary income, the basis for computing such gain is $1,925,105.81.
4. The above mentioned transaction was consummated on November 26, 1948 and was carried out in accordance with its terms. Blackburn, as owner of the royalty interest, received the money from the companies running the oil from the properties, pursuant to transfer orders executed by plaintiffs to the respective pipe line companies.
5. The deed above referred to provided that after the royalties described therein had produced sufficient oil to pay the purchaser, D. E. Blackburn, the sum of $10,000,000.00 (with interest as computed thereon at the rate of 4% per annum), the properties would revert to the grantors. The aforesaid amount was duly received by Blackburn from said properties during the period beginning January 28, 1949 and ending December 24, 1951. Upon receipt of this amount, Blackburn, the purchaser, pursuant to the provisions in the deed, executed his quitclaim deed, reconveying the royalties to the Estate, which quitclaim was duly recorded in the Deed Records of Refugio County, Texas.
6. Both the sellers and the buyer (D. E. Blackburn) intended the transaction in question to be a sale and purchase of the royalty interests in question. They did not intend to enter into a loan or a mortgage transaction. At no time did the Executors, individually, or in their fiduciary capacity, make any guaranty or agreement to indemnify the purchaser or enter into agreements with the purchaser other than the agreement to sell, as set forth in the deed. At all times, the risks incident to the presence and production of sufficient quantities of oil to make the transaction profitable for the purchaser were upon the purchaser. The purchaser, D. E. Blackburn, borrowed the purchase money from Chase National Bank of New York, giving his note and a deed of trust on the properties purchased by him. The bank dealt only with Blackburn and looked only to him. The plaintiffs did not have...
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