O'MEARA v. Commissioner of Internal Revenue
| Decision Date | 19 August 1929 |
| Docket Number | No. 76,79.,77,76 |
| Citation | 34 F.2d 390 |
| Parties | O'MEARA v. COMMISSIONER OF INTERNAL REVENUE. NATIONAL BANK OF TOPEKA v. SAME. ELMHURST INV. CO. v. SAME. |
| Court | U.S. Court of Appeals — Tenth Circuit |
T. M. Lillard, of Topeka, Kan. (Bruce Hurd and O. B. Eidson, both of Topeka, Kan., on the brief), for appellants.
Millar E. McGilchrist, Sp. Asst. to Atty. Gen. (Mabel Walker Willebrandt, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and P. S. Crewe, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for appellees.
Before LEWIS, COTTERAL, and PHILLIPS, Circuit Judges.
These are appeals from decisions of the Board of Tax Appeals. The facts, as disclosed by the findings of the Board of Tax Appeals, the stipulation of facts filed in the proceeding before the board, and the oral testimony of three witnesses given at the hearing before the board, are as follows:
The board found: That on and prior to March 31, 1919, certain oil and gas leases in Marion county, Kansas, were owned by the following persons as tenants in common in the following proportions: S. W. Forrester, 29/96; C. W. Horn, 12/96; N. B. Burge, 5/96; C. B. Burge, 1/96; C. A. O'Meara, 1/96; Elmhurst Investment Company, a corporation, 48/96. That such persons, on September 1, 1919, completed a test well on one of these leases which resulted in a dry hole. That such persons, on February 4, 1919, completed a second well on another of these leases, which came in with a flush production of about 1,200 barrels per day. That such persons, on March 31, 1919, entered into a written contract to organize a corporation to take over and operate such oil leases and to market and sell the oil therefrom.
The findings of the board set out such contract in full. This contract described the oil and gas leases; it recited that the above mentioned persons were the owners thereof in the proportions above set out; that such persons had found it inconvenient to make contracts and to transact business with reference to the development and operation of such oil properties, under such diverse ownership thereof.
The contract provided that it was "agreed by and between said owners that for the purpose of placing the title to said leases under a single ownership, and for greater convenience in making contracts and doing business, that a corporation be created for the purpose of taking the title to said properties, holding and developing the same, and disposing of the products therefrom, all in the interest of the present owners thereof." (Italics ours.)
It further provided that such corporation was to be incorporated under the laws of Kansas; that it was to have a capital stock divided into 50,000 shares, of the par value of $100 each; that after the organization of the corporation such persons would convey to it their respective interests in such oil and gas leases, and that stock of the corporation should be issued to such persons "for the purpose of representing our respective interests in said property, in exact proportion thereto, in amounts as follows:
Elmhurst Investment Co. ............... 23,040 shares
S.W. Forrester ........................ 13,920 "
C.W. Horn ............................. 5,760 "
N.B. Burge ............................ 2,400 "
C.A. O'Meara .......................... 480 "
C.B. Burge ............................ 480 "
______
Total ............................ 46,080 shares"
It further provided "that any moneys required for the development of these properties" should be furnished by such persons "in proportion to their respective interests therein."
The board further found that the Orlando Petroleum Company was incorporated April 15, 1919, under the laws of Kansas, with its principal office at Topeka, Kan., and with an authorized capital stock of 50,000 shares, of the par value of $100 each; that at a meeting of the stockholders of the Orlando Company, on April 15, 1919, the contract above referred to was treated as a proposal and a resolution was adopted reciting and accepting such proposal to transfer the leases in consideration of the delivery of the certificates of capital stock of the Orlando Company; and that the resolution further provided that the transfer of the leases should include the transfer of drilling rigs, casing, tools and other personal property on the leases or used in connection therewith, and also the office furniture and fixtures owned by such persons, located in their office at Peabody.
The board further found that the oil leases, described in the contract, were assigned to the Orlando Company with the exception of one lease known as the Holman lease, which had theretofore been sold; that the consideration received for the sale of the Holman lease was paid to the Orlando Company and that the stock was issued in the proportions provided for in the contract of March 31st.
The board further found that the Orlando Company had no assets whatever prior to the transfer of the leases and personal property; that, after the transfer of the leases and personal property to the Orlando Company, such persons owned all the issued capital stock thereof and were in absolute control thereof; that $105,423.21 was the cost of the property transferred by such persons to the Orlando Company; that the parties had agreed that $1,096,339.87 was the fair market value, on April 15, 1919, of the leases and equipment transferred to the Orlando Company, but had stipulated that such agreement should not be taken as an admission that the stock received therefor had a fair market value of that or any other amount; and that the Commissioner determined the fair value of the stock of the Orlando Company on the basis of the market value of the assets transferred to the corporation in exchange for its stock and found that a taxable gain had been realized on April 15, 1919, by each of the appellants, equal to the difference between the cost of his or its proportionate interest in the assets transferred and the value so determined of his or its proportionate interest in the stock, and entered a deficiency against each appellant accordingly.
The board further found that none of the stock was sold at or about April 15, 1919, nor were there any offers to sell or offers to buy at or about such date.
The stipulation of facts before the board showed that the leases were located in township 22, range 4 east of the sixth principal meridian in Marion county, Kansas, within a radius of 2½ miles from the discovery well.
C. M. Clark testified that in April, 1919, he was acquainted with the Peabody field, where these leases were located; that there was no market for the stock of the Orlando Company at that time; that he was in a position to know if there had been a market; that none of the Orlando Company's stock had been offered for sale; that none of it had been sold; that the discovery well was on the Joliffe land in section 9, but that it was not a profitable producer; that the first profitable well was on the Gillette land and that it was the only producing well in the field when the Orlando Company was organized; and that the nearest well was nine miles away in another field.
C. A. O'Meara testified that there was no market for the stock of the Orlando Company; that the stock was speculative in character; that none of the stock had been offered for sale and that he knew of no person offering to buy it; that there were transactions in oil leases but he knew of no transactions in stock; that he knew of no person who was in the market to buy Orlando Company's stock; that he knew of no place where he could have realized cash for his stock; and that he could not have sold his stock in the Orlando Company.
M. C. McCreevy testified that he was a member of a brokerage firm which had offices in Wichita, Oklahoma City, and Bartlesville; that in April, 1919, there was no market for the stock of the Orlando Company; and that he was prejudiced against such stock.
The board held that the determination, by the Commissioner, of the value of the stock on the basis of the fair market value of the assets transferred to the Orlando Company was justified, and that each of the appellants derived a taxable gain or income from the transfer of such assets in the amounts determined by the Commissioner.
Counsel for the appellants contend:
First. That the transfer of such assets to the Orlando Company was neither a sale nor exchange of property within the meaning of the Revenue Act of 1918.
Second. That the transaction did not result in a taxable gain or income to the parties making such transfer.
Third. That the stock did not have a fair market value within the meaning of section 202 (b) of the Revenue Act of 1918 (40 Stat. 1060), and therefore the transaction did not result in something of exchangeable value proceeding from the property and severed or rendered severable from the capital.
Counsel for the Commissioner contend that a taxable gain accrued to the appellants under the principles announced in Marr v. United States, 268 U. S. 536, 45 S. Ct. 575, 69 L. Ed. 1079, United States v. Phellis, 257 U. S. 156, 42 S. Ct. 63, 66 L. Ed. 180, Rockefeller v. United States, 257 U. S. 176, 42 S. Ct. 68, 66 L. Ed. 186, and Cullinan v. Walker, 262 U. S. 134, 43 S. Ct. 495, 67 L. Ed. 906.
In Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 193, 64 L. Ed. 521, 9 A. L. R. 1570, the court defined "income" as follows: "`Income may be defined as the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets."
In amplifying this definition, the court said that income was "not a gain accruing to capital; not a growth or increment of value in the investment; but a gain, a profit,...
To continue reading
Request your trial
-
Lazarus v. Comm'r of Internal Revenue
...C.B. 1; Annie Louise Van Aken, 35 B.T.A. 151, 159 (1936); acq. 1937-1 C.B. 26. The rule was stated long ago in O'Meara v. Commissioner, 34 F.2d 390, 394 (C.A. 10, 1929), as follows: The declaration of trust need not be contained in the instrument which transfers the legal title. It may be s......
-
Morrisdale Coal Co. v. Commissioner of Internal Rev.
...a proper exercise of the power of the Board to regulate practice before it. Boggs & Buhl v. Commissioner, supra; O'Meara v. Commissioner, 10 Cir., 34 F.2d 390, 395; Bankers' Pocahontas Coal Co. v. Burnet, The petitioner, for its part, relies upon Helvering, Commissioner v. Edison Securities......
-
Acme Steel Company v. Commissioner
...24 B.T.A. 853 (1931); O'Meara v. Commissioner [Dec. 3729], 11 B.T.A. 101, 109 (1928), reversed on other issues [1 USTC ¶ 425] 34 F.2d 390 (10th Cir. 1929)). "Indeed, were this not true, then the absurd result would be that in every case in which this Court determined that no deficiency exis......
-
Perry v. Commissioner of Internal Revenue
...by the taxpayer until the year in which payment in money is received. Bedell v. Commissioner, 2 Cir., 30 F.2d 622; O'Meara v. Commissioner, 10 Cir., 34 F. 2d 390; Logan v. Commissioner, 2 Cir., 42 F.2d 193, affirmed sub nomine Burnet v. Logan, 283 U.S. 404, 413, 51 S.Ct. 550, 75 L.Ed. 1143;......