Couzens v. Commissioner of Internal Revenue
| Decision Date | 05 May 1928 |
| Docket Number | Docket No. 10438. |
| Citation | 11 BTA 1040 |
| Parties | JAMES COUZENS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Joseph E. Davies, Esq., John W. Davis, Esq., Arthur J. Lacy, Esq., Clarence E. Wilcox, Esq., Franklin D. Jones, Esq., Sidney T. Miller, Esq., Herbert Pope, Esq., E. Barrett Prettyman, Esq., Lewis H. Paddock, Esq., Raymond H. Berry, Esq., Montgomery B. Angell, Esq., Luman W. Goodenough, Esq., and Russell A. McNair, Esq., for the petitioner.
A. W. Gregg, Esq., W. Hall Trigg, Esq., Floyd F. Toomey, Esq., E. C. Lake, Esq., and J. F. Greaney, Esq., for the respondent.
BEFORE STERNHAGEN, MARQUETTE, AND VAN FOSSAN.
This is one of nine proceedings each instituted by an individual taxpayer by filing a separate petition to which respondent duly made answer. The trial of the cases was consolidated, because a large volume of the evidence was appropriate for consideration in all, but each case is separately decided. So far as it is practicable, repetition will be avoided.
There are two issues common to all:
1. Whether, in the circumstances shown by the evidence, the question of the fair market price or value on March 1, 1913, of the stock of the Ford Motor Co., as the basis for computing the gain on its sale in 1919, was open for determination by the respondent Commissioner in determining a deficiency or rejecting a claim in abatement antecedent to this proceeding, and is open for redetermination in this proceeding; and
2. If so, what was the fair market price or value on March 1, 1913, of the Ford stock?
The respondent Commissioner, believing that he was authorized to do so, asserted in March, 1925, that these nine petitioners had paid less than their full liability for income tax for 1919. As to six of them he assessed the amount, acting upon the hypothesis that delay would jeopardize collection. Such taxpayers duly filed claims in abatement and gave bond as provided by statute; these claims were rejected, and the cases are here on such assessments and rejected claims. As to three taxpayers, no assessment was made but notice of deficiency was mailed, and the cases are here upon such notices of deficiency, with none of the issues as to jeopardy assessments.
The amounts in controversy as shown by the original pleadings are as follows:
----------------------------------------------------------------
Docket | Petitioner | Amount
No. | |
-------|-----------------------------------------|--------------
10438 | James Couzens _________________________ | $9,455,303.10
10826 | Rosetta V. Hauss ______________________ | 84,404.83
4640 | John F. Dodge Estate __________________ | 4,337,295.20
4641 | Horace E. Dodge Estate ________________ | 4,337,295.20
10825 | Horace H. Rackham _____________________ | 4,337,295.20
10910 | John W. Anderson ______________________ | 1,438,826.35
11007 | Paul R. Gray __________________________ | 2,277,079.88
11008 | David Gray ____________________________ | 2,277,079.88
11009 | Philip H. Gray Estate _________________ | 2,277,079.88
-----------------------------------------------------------------
By reason of modifications made before or during trial, these amounts were changed to some extent.
FINDINGS OF FACT.
2. On March 1, 1913, and prior thereto, and until September 2, 1919, the petitioner was the owner of 2,180 shares of the stock of the Ford Motor Co., a Michigan corporation, out of a total of 20,000 shares of such stock outstanding.
3. Shortly before April 15, 1919, Henry Ford and Edsel Ford, who were then the owners of approximately 58½ per cent of the capital stock of the Ford Motor Co., desired to purchase the remaining 41½ per cent of the stock owned by the minority stockholders, including that owned by the petitioner. Without the knowledge of the petitioner they engaged the services of the Old Colony Trust Co. of Boston and its representatives to purchase the stock for them as undisclosed principals. Pursuant to such arrangement and immediately prior to April 15, 1919, Stuart W. Webb, then an officer of and acting for the Trust Company and the undisclosed principals, accompanied by other representatives of the company, went to Detroit, Mich., to negotiate for the purchase of the stock of all the minority stockholders of the Ford Company, including the 2,180 shares thereof then owned by the petitioner.
4. Thereafter the Trust Company engaged the services of Arthur A. Ballantine, a Boston lawyer and a former Solicitor of Internal Revenue, who, on behalf of and under the direction of the undisclosed principals, Henry Ford and Edsel Ford, went to Washington and conferred with the officials of the Treasury Department and the Bureau of Internal Revenue.
5. On or about April 29, 1919, Ballantine wrote the following letter to Daniel C. Roper, then Commissioner of Internal Revenue:
HOTEL WASHINGTON Washington, D. C., April 29, 1919. Hon. DANIEL C. ROPER Commissioner of Internal Revenue,
Treasury Department, Washington, D. C.
SIR:
Confirming my conversation with you in behalf of the Old Colony Trust Company, Boston: The Old Colony Trust Company proposes to buy all of the 41% of the stock of the Ford Motor Company, of Detroit, not held by the Ford interests. It is believed that the purchase if consummated will tend to promote the interests of one of the largest industries in the country. The purchase cannot be effected unless it is possible first to ascertain the judgment of the Bureau of Internal Revenue as to the value of the stock as of March 1, 1913. The Bureau presumably has at hand or readily available all figures necessary for such a valuation.
May I therefore ask that you advise me what valuation the Bureau places on the stock of the Ford Motor Company as of the date mentioned?
6. After the passage of the Revenue Act of 1909, imposing excise taxes on corporations, there came to the Bureau from over the entire country many and varied questions concerning it. This occurred again after the passage of the Revenue Act of 1913. Answers were made to as many inquiries as possible which appeared to be legitimate and proper, without regard to and usually without knowledge of whether they were before or after the filing of a return. Replies were made on the basis of the facts stated and these facts were recited in the answers. No attempt was made to investigate the facts stated in the questions. Answers were made to hypothetical questions and questions both of law and of fact.
7. The object was to be as helpful as possible to taxpayers in assisting them to make up their returns. Particularly was this so when they gave statements of fact which applied to their returns. Rulings on numerous hypothetical cases were published in the form of primers, so-called, for the guidance of the public. Commissioner Roper, discussing matters of policy, stated to the men holding the more responsible positions in the various units of the Bureau that the job was too big to be carried out without the cooperation of the taxpayers, and that cooperation could best be secured by giving to taxpayers all the aid and assistance they possibly and properly could in solving tax problems.
8. The practice of answering inquiries was later modified because the complexity of the later revenue acts brought about a volume of inquiries from taxpayers, lawyers and accountants, the work of answering which became so burdensome as to interfere with the ordinary duties of some of the sections of the Bureau. It was also found in some instances that after giving advice upon which the taxpayers had relied, the Bureau, when the returns were filed, reversed its position. Attempts were made to get away from the practice of answering hypothetical questions as early as the latter part of 1914, and in 1917 a further attempt was made to curb the answers to such questions and instructions were issued that hypothetical questions should not be answered. In 1919, shortly before the writing of the letter of May 19, 1919, hereinafter referred to, oral instructions were issued, for the purpose of checking the volume of inquiries, to refuse to answer questions that were not based upon accomplished facts.
9. On August 13, 1919, the following mimeograph was promulgated:
IT-Mim. 2228.
TO ADVISORY TAX BOARD, SOLICITOR, DEPUTY COMMISSIONERS, COLLECTORS OF INTERNAL REVENUE, REVENUE AGENTS, AND OTHERS CONCERNED:
Requests are being received daily for rulings and advice upon abstract cases or prospective transactions involving questions of income tax and profits liability. These requests are so numerous and the insistence on prompt action so great that it seems advisable at this time definitely to outline the Bureau's policy which will govern the consideration of these requests.
The Revenue Act of 1918 departs widely at many points from prior law or practice, and has given rise to new questions of such importance, complexity, and number that the resources of the Bureau are no more than adequate to advise taxpayers promptly of their present liabilities arising out of past transactions. It is impossible to answer every question which the invention or ingenuity of the inquirer may devise without neglecting the fundamental duty of determining tax liability upon the basis of actual happenings. Under these circumstances the administrative necessity is obvious of giving precedence over abstract or prospective cases to actual cases in which the taxpayer desires to know what are his immediate liabilities under the law.
It will be the policy of the Bureau not to answer any inquiry except under the following circumstances:
(a) The transaction must be...
To continue reading
Request your trial