Felin v. Kyle, 6774
| Decision Date | 20 February 1939 |
| Docket Number | No. 6774,6775.,6774 |
| Citation | 102 F.2d 349 |
| Parties | FELIN v. KYLE, Formerly Acting Collector of Internal Revenue (two cases). |
| Court | U.S. Court of Appeals — Third Circuit |
Bertram P. Rambo, and Rambo, Rambo & Knox, all of Philadelphia, Pa., for appellants.
James W. Morris, Asst. Atty. Gen., Sewall Key, Norman D. Keller, and J. Leonard Lyons, Sp. Assts. to Atty. Gen., J. Cullen Ganey, U. S. Atty., of Bethlehem, Pa., and Thomas J. Curtin, Asst. U. S. Atty., of Philadelphia, Pa., for appellee.
Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.
The question here involved is whether certain income received by the appellants was "capital gain", as reported by them in their income tax return for 1932, or ordinary income.
The commissioner held that it was ordinary income, taxable at a higher rate, and on this basis determined deficiencies against the appellants. They paid the alleged deficiencies and brought suit in the District Court against the appellee, formerly acting collector of internal revenue, to recover the amounts so paid. The District Court held that the profit was ordinary income and entered judgment for the appellee. This appeal was thereupon taken.
In 1928, the Charles F. Felin Lumber Company, hereinafter called the Lumber Company, in which the appellants were stockholders, was purchased by or merged into the Lumber and Millwork Company of Philadelphia, hereinafter called the Millwork Company. In exchange for their stock in the Lumber Company, the appellants received certain 6½% sinking fund gold notes of the Millwork Company.
In 1932, certain builders were heavily indebted to the Millwork Company. They offered to satisfy part of their obligations by transferring to the Millwork Company mortgages held by them. The Millwork Company, however, refused such a method of payment. After several discussions, the appellants agreed to exchange some of their gold notes for some of the mortgages held by the builders and left the details of the matter to the discretion of the Millwork Company. The following transactions were then carried out: The Millwork Company redeemed and cancelled gold notes held by the appellants, amounting to $28,000, and paid them interest totalling $951.22. Of these amounts, only $1,251.22 was placed at their disposal. With the balance of $27,700, the Millwork Company purchased for the appellants certain mortgages from the builders. The builders thereupon applied that amount in reduction of their debts to the Millwork Company.
The appellants realized taxable income as a result of the redemption of the gold notes which they reported as "capital gain" in their income tax returns for that year. As indicated above, however, deficiency assessments were made against them on the ground that the profit realized by them was not "capital gain" but was ordinary income, taxable at a higher rate.
As the gold notes so redeemed had been owned by the appellants "for more than two years" they were "capital assets" within the meaning of Section 101(c) (8) of the Revenue Act of 1932, 47 Stat. 191, 26 U.S.C.A. § 101 n...
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