Orpheum Bldg. Co. v. Anglim

• Decision Date: 23 April 1942
• Docket Number: No. 9936.,9936.
• Citation: 127 F.2d 478
• Parties: ORPHEUM BLDG. CO. v. ANGLIM.
• Court: U.S. Court of Appeals — Ninth Circuit

127 F.2d 478 (1942)

ORPHEUM BLDG. CO. v. ANGLIM.

No. 9936.

Circuit Court of Appeals, Ninth Circuit.

April 23, 1942.

Chickering & Gregory and W. Burleigh Pattee, all of San Francisco, Cal., for appellant.

Samuel O. Clark, Jr., Asst. Atty. Gen., J. Louis Monarch, Frank K. Foster, and Edward H. Hammond, Sp. Assts. to Atty. Gen., and Frank J. Hennessy, U. S. Atty., and Esther B. Phillips, Asst. U. S. Atty., both of San Francisco, Cal., for appellee.

Before GARRECHT, HANEY, and HEALY, Circuit Judges.

HANEY, Circuit Judge.

Appeal is taken from a judgment for appellee in an action brought by appellant to recover stamp taxes paid by it.

In 1932, Marshall Square Building Company, a California corporation, hereafter called Marshall Square, conveyed certain property in trust to secure the payment of its bonds. It defaulted in the payment of interest due on the bonds on February 15, 1934. A bondholders' committee was thereafter formed. The committee and Marshall Square entered into an agreement dated May 20, 1936, which set forth a plan of reorganization as follows: a new corporation was to be organized and in exchange for the unincumbered title to the properties of Marshall Square was to issue 92½% of its stock to the bondholders of Marshall Square, and 7½% of its stock to the stockholders of Marshall Square.

The committee submitted the plan to the bondholders in writing on November 9, 1936. The plan as so submitted provided for the execution by each of the bondholders of a document approving the plan and appointing the committee as his attorney in fact to consent to the release of the trust indenture and to accept voting trust certificates for the stock he was entitled to receive under the plan. After sufficient bondholders had consented to the plan, the taxpayer was organized under the laws of Delaware.

The plan was carried out as follows: Marshall Square delivered to an escrow agent its deed to its properties to the taxpayer; the trustee delivered to such escrow agent a release of the lien of the trust indenture; the taxpayer delivered to such escrow agent a certificate for 12,934 shares of its stock in the name of Marshall Square, and another certificate for 159,520 shares of its stock in the names of 5 individuals as voting trustees; and the voting trustees delivered to such escrow agent voting trust certificates representing the 159,520 shares of taxpayer's stock. Marshall Square's deed and the trustee's release were then delivered to the taxpayer, the stock certificate for 12,934 shares of taxpayer's stock was delivered to Marshall Square, the stock certificate for 159,520 shares of taxpayer's stock was delivered to an agent of the voting trustees. Presumably, the voting trust certificates were then delivered to the old bondholders of Marshall Square.

The fair market value of the realty conveyed to the taxpayer, and of the taxpayer's stock delivered to the escrow agent was $1,517,695. The total amount due on Marshall Square bonds was $1,595,200 plus unpaid interest. The taxpayer affixed revenue stamps amounting to $112.50 to the deed. The Commissioner of Internal Revenue assessed an additional tax of $1,405.50 on account of the conveyance, computing the tax on a valuation of $1,517,695.

The taxpayer affixed revenue stamps to its stock book in payment of the tax on the original issue of the stock amounting to $1,550.00. The Commissioner determined that the transaction was the equivalent of the following: (1) issuance of taxpayer's stock to Marshall Square; (2) transfer of the right to receive such stock by Marshall Square to the voting trustees; (3) issuance of voting trust certificates by the voting trustees to Marshall Square; (4) transfer of the right to receive such voting trust certificates by Marshall Square to the bondholders. The Commissioner therefore assessed an additional tax of $6,380.80 on the second, and a like tax on the fourth, transfer mentioned.

The taxpayer paid these amounts with interest, and sought, but was refused by the Court below, recovery for the total amount paid. The trial court's theory differed from that of the Commissioner. The trial court conceived that the transaction was the equivalent of the following: (1) issuance of the taxpayer's stock to Marshall Square; (2) transfer of the right to receive such stock by Marshall Square to the bondholders; (3) transfer of the right to receive such stock by such bondholders to the voting trustees; and (4) issuance by the voting trustees to the bondholders of the voting trust certificates. The trial court held, therefore, that a tax should have been paid on the second and third transfers.

We think neither of these theories is correct and hold that the transaction was the equivalent of: (1) issuance of taxpayer's stock to the bondholders; (2) transfer by the bondholders of the right to receive such stock to the voting trustees; (3) issuance of the voting trust certificates by the voting trustees to the bondholders.

With respect to the conveyance, the trial court found: "Said 12,934 shares were delivered to the Marshall Square Building Company in consideration of the Marshall Square Building Company's conveyance * * *"

The Revenue Act of 1932, § 725, 26 U. S.C.A. Int.Rev.Acts, page 635, added to the Revenue Act of 1926, a provision taxing conveyances of realty. As amended, the provision specifies that the tax is to be measured on particular multiples of "the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of sale". Article 77, of Treasury Regulations 71, promulgated under the act in question, provides that "the tax is computed upon the full consideration for the transfer less all encumbrances which rest on the property before the sale and are not removed by the sale".

The statute permits the tax to be measured by (1) the consideration; (2) the value of the interest conveyed; or (3) the value of the property conveyed. Since in this case, the tax was measured by the "value * * * of the property conveyed", the Commissioner's action was within the words of the statute. Appellant contends, however, that the regulation limits the statute so that only the consideration is to be used to measure the tax. We think such contention cannot be upheld. The regulation deals with only one of the three bases which may be used to compute the tax. It does not purport to say that the basis dealt with is the only one which can be used. The other two bases need no explanation by means of regulations, and we believe it to be obvious, therefore, that the regulations were not intended to reach the result contended for by appellant.

With respect to the tax on the transfer of stock appellee states that certain decisions of this court "are clearly wrong". We suppose that such statement is an implied invitation to overrule the prior cases decided here. For that reason we will give a more extended examination of the question than would otherwise be required.

Section 5 of the Act of October 22, 1914, 38 Stat. 745, 759, levied a tax "on all sales, or agreements to sell, or memoranda of sales or deliveries or transfers of shares or certificates of stock in any association, company, or corporation * * * whether entitling the holder in any manner to the benefit of such stock * * *" and in a separate provision on certificates "of profits, or any certificate or memorandum showing an interest in the property or accumulations of any association, company, or corporation, and on all transfers thereof * * *" as described in Schedule A thereof. That language was repeated in § 800, Schedule A(4), of the Act of October 3, 1917, 40 Stat. 300, 322, with two exceptions: (1) that the tax was levied on all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of "legal title to" such shares or certificates; and (2) the provision regarding certificates of profits or accumulations in any corporation was omitted.

Section 1 of the Revenue Act of 1918 (Act of February 24, 1919, 40 Stat. 1057) defined the word "corporation" to include association, and § 1100 et seq., Schedule A(4), levied a tax on "all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to shares or certificates of stock or of profits or of interest in property or accumulations in any corporation, or to rights to subscribe for or to receive such shares or certificates * * * whether entitling the holder in any manner to the benefit of such stock, interest, or rights, or not * * *." This language consisted of the language used in the Act of October 22, 1914, and (1) the words "legal title to" from the Act of October 3, 1917, (2) the newly added words "or to rights to subscribe for or to receive such shares or certificates". The language of the Revenue Acts of 1921,¹ 1924² and 1926³ was identical with that quoted above from the 1918 act. None of the Congressional Committee Reports on the bills which became these acts sheds any light on the problem before us.

The Revenue Act of 1932 (Act of June 6, 1932, 47 Stat. 169) made a slight change in the language previously used. Section 723 thereof, by amendment of the provision in the 1926 act, 26 U.S.C.A. Int.Rev. Acts, page 63, levied a tax on "all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to any of the shares or certificates mentioned or described in subdivision 2, or to rights to subscribe for or to receive such shares or certificates * * * (whether entitling the holder in any manner to the benefit of such share, certificate, interest, or rights, or not) * * *." The shares or certificates mentioned and described in subdivision 2 (see § 722) were "shares or certificates of stock, or of profits, or of interest in property or accumulations * * *." The Act of June 29, 1936, 49 Stat. 2029, 26 U.S.C.A. Int.Rev.Acts, page 631, repeated the words quoted.

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