Fleming v. Commissioner of Internal Revenue, 11390.
| Decision Date | 12 February 1946 |
| Docket Number | No. 11390.,11390. |
| Citation | 153 F.2d 361 |
| Parties | FLEMING v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Fifth Circuit |
John J. Finnorn, of New Orleans, La., for petitioner.
Maryhelen Wigle, A. F. Prescott, and Harold C. Wilkenfeld, Sp. Assts. to the Atty. Gen., and Sewall Key, Acting Asst. Atty. Gen., and J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, and John M. Morawski, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.
Before SIBLEY, HOLMES, and McCORD, Circuit Judges.
This petition is for review of a decision of the Tax Court, determining the income tax of petitioner for the year 1940. 4 T. C. 168. The facts were stipulated.
Calvin A. Fleming, with his wife and children, moved to Louisiana from Minnesota in 1910. Shortly thereafter he organized a corporation, acquiring its capital stock with cash that had been earned by him in Minnesota. His wife died in 1932, at which time 87 shares of said stock were held by Fleming and 54 shares, in varying numbers, by their children. In 1937 another corporation was organized to acquire, and it did acquire, the lands owned by the first corporation. The stock of the second corporation was issued, share for share, to the stockholders of the first corporation. Oil was discovered on said lands; thereafter, in 1940, the second corporation was dissolved and its assets were distributed in kind to its shareholders in proportion to their respective holdings.
In his income-tax return filed by petitioner for the year 1940, no gain was reported from the liquidation of the second corporation. The Commissioner determined that the total fair market value of the assets distributed in liquidation was $297,818.74, valuing the notes receivable at $9,982; the land, exclusive of minerals, at $25,336.74; and minerals (producing oil and gas leases) at $262,500. The respondent determined a deficiency of $30,427.34 plus a penalty of $268.05. No point is made on this appeal as to any of the valuations except the minerals. Petitioner contends that the Commissioner's determination of the fair market value of the oil-and-gas interest, distributed to him, is erroneous because based on assumptions and estimates of the existence and value of property that is fugacious in character and incapable of private ownership until reduced to possession.
The Tax Court held that, in determining the fair market value of the corporate assets so distributed, the value above stated should be attributed to the recoverable oil and gas in or under said lands. It further held that the stock owned by Calvin Fleming was his separate property and that the gain realized thereon by reason of the complete liquidation of the corporation was his gain. The questions presented on this appeal are whether such an interest in oil and gas in land situated in Louisiana has an ascertainable fair market value, and whether ownership of the stock was correctly determined.
Among the assets distributed to shareholders on dissolution of the corporation was, as we have seen, a retained interest in the oil and gas underlying the lands of the corporation. The taxpayer contends that the Tax Court erred as a matter of law in holding that this interest had an ascertainable fair market value which was to be included in computing the amount of the gain upon the exchange of the stock for the corporate assets. It is said that oil and gas in the earth in Louisiana are not subject to ownership distinct from the soil, and that no gain has been realized by the taxpayer because any attempt to evaluate the recoverable oil and gas in place is mere surmise and speculation. The income-tax law, petitioner contends, is concerned only with realized gains and losses, not with unrealized appreciation as in the instant case.
At the time of the liquidation of the corporation, there were several producing oil wells on the land, and other wells had been planned or were being drilled. These were elements properly to be considered in arriving at the fair market value of the property. The Commissioner determined the fair market value in the exercise of his judgment upon...
To continue reading
Request your trial
-
Herbert v. Riddell
...Pearsall v. United States, 1931, 52 F.2d 1050, 73 Ct.Cl. 187; Boudreau v. Commissioner, 5 Cir., 1943, 134 F.2d 360; Fleming v. Commissioner, 5 Cir., 1946, 153 F.2d 361; Durkee v. Commissioner, 6 Cir., 1947, 162 F.2d 184; compare, Palmer v. Commissioner, 1937, 302 U.S. 63, 68-72, 58 S.Ct. 67......
-
Weil v. Donnelly
...in suit was not community income and is taxable to the taxpayer in its entirety. Beals v. Fontenot, 5 Cir., 111 F.2d 956; Fleming v. Commissioner, 5 Cir., 153 F.2d 361. 11. A recomputation shall be made by the parties in conformity with these findings, taking into account all adjustments ma......
-
Finley v. Commissioner
...amount of the gain when the property is sold. See Fleming v. Commissioner Dec. 14,163, 4 T.C. 168 (1944), affd. 46-1 USTC ¶ 9296 153 F. 2d 361 (5th Cir. 1946); O'Connor v. Commissioner Dec. 10,805, 40 B.T.A. 489 (1939), affd. 40-1 USTC ¶ 9361, 110 F. 2d 652 (5th Cir. 3 For a discussion of t......
-
Commissioner of Internal Revenue v. Carter
...capital gain, not as ordinary income. Boudreau v. Commissioner of Internal Revenue, 5 Cir., 134 F.2d 360; Fleming v. Commissioner of Internal Revenue, 5 Cir., 153 F.2d 361. The question presented by the present appeal is whether a different result is required when contract obligations havin......