Helvering v. Salvage Salvage v. Helvering

• Decision Date: 13 January 1936
• Docket Number: Nos. 173 and 280,s. 173 and 280
• Citation: 297 U.S. 106,56 S.Ct. 375,80 L.Ed. 511
• Parties: HELVERING, Commissioner of Internal Revenue, v. SALVAGE. SALVAGE v. HELVERING, Commissioner of Internal Revenue
• Court: U.S. Supreme Court

297 U.S. 106

56 S.Ct. 375

80 L.Ed. 511

HELVERING, Commissioner of Internal Revenue,

v SALVAGE.

SALVAGE

v. HELVERING, Commissioner of Internal Revenue.

Nos. 173 and 280.

Argued Dec. 20, 1935.

Decided Jan. 13, 1936.

Messrs. Homer S. Cummings, Atty. Gen., and Golden W. Bell, Asst. Sol. Gen., of Washington, D.C., for Helvering.

Mr. John G. Jackson, of New York City, for Salvage.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

These cross-writs bring up a judgment of the Circuit Court of Appeals, Second Circuit, which disapproved a deficiency assessment for 1929 income, and authorized recovery for overpayment below the taxpayer's claim.

The petition for certiorari in No. 173 asserts: 'The question is—Whether the taxpayer is estopped to claim that the difference between the market value of the 1,500 shares as of December 30, 1922 and their cost to him constituted taxable income to him for 1922; and hence that the fair market value of these shares, and not their cost, is the basis to be used in measuring the gain from the disposition of the shares in 1929, no income from the transaction having been reported in 1922.'

The points to be urged in No. 280 are stated thus: 'The Circuit Court of Appeals erred: (1) In holding that the cost base of the preferred stock of American Viscose Corporation redeemed in 1929 was to be arrived at by taking as the fair market value of the Viscose Company stock the sum of $100 per share, insofar as the five-sevenths of said stock which was subject to the option to repurchase was concerned. (2) In making a finding as to the value of said optioned stock.'

Prior to 1922, Salvage, the taxpayer, bought 25 shares Viscose Company stock. He paid $166.66 for each one; for all $4,166.66. In December, 1922, he acquired from the corporation 1,500 shares for which he paid $100 per share ($150,000) and entered into an obligation to refrain from competing business, etc. Also, he agreed that during 1923 the corporation might repurchase five-sevenths of 1,500 shares at par; during 1924, four-sevenths, etc. Intrinsically (when unincumbered) a share of the company stock was then worth $1,164.70.

Later, during 1922, all these shares (1,525) were exchanged for 6,100 preferred shares, redeemable at $110 and 7,625 common shares, American Viscose Corporation. The basis of exchange was four preferred and five common shares of new stock for one share of old. The taxpayer's return for 1922 (not in evidence) showed no gain from these transactions.

During 1929, American Viscose Corporation redeemed its preferred shares at $110; Salvage received $671,000. His return for that year disclosed as net capital gain the difference between that sum and $154,166.66, total outlay for the 1525 converted shares. Upon this, he paid the assessed tax. Apparently, he supposed apportionment between preferred and common stock of their total cost was impossible or unnecessary; also, that no taxable gain arose before return of his entire outlay.

Upon an audit, the Commissioner ruled that proper apportionment...