Shaw v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 02 October 1928 |
| Docket Number | Docket No. 15612. |
| Citation | 13 BTA 716 |
| Parties | A. W. SHAW, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
P. H. Lowrey, Esq., for the petitioner.
Brice Toole, Esq., for the respondent.
The Commissioner determined a deficiency of $3,219.20 in income tax for 1920. The petitioner claims that the Commissioner erred (1) in his determination of the gain derived from the sale of a certain plantation, the personal property thereon, and two claims for money against certain parties, and (2) in disallowing losses of $7,030 claimed in the return for 1920.
FINDINGS OF FACT.
Petitioner is a resident of Lambert, Miss., where he had for some time operated a cotton plantation of which he was the owner.
Sometime in the latter part of 1919 he entered into a contract with A. B. Shelton for the sale of his plantation, certain personal property thereon, and for the assignment of two claims for money due himself, and, before December 31 of such year, received the amount of $4,000 from Shelton to be applied on the purchase price of the property.
February 4, 1920, petitioner and his wife, pursuant to the contract to sell, by deed, conveyed, transferred, and assigned to Shelton, the plantation, the personal property thereon, and the two claims for money, and received payment as follows: cash, $15,200; indebtedness of petitioner assumed by Shelton, $14,736.44; and six purchase money notes with an aggregate face value of $46,063.55, bearing interest at the rate of 6 per cent per annum, maturing over a period of five years, and secured by a trust deed which was inferior to other liens on the property. The fair market value of the promissory notes was 75 per cent of their face amount.
February 4, 1920, Shelton, by warranty deed, conveyed, transferred and assigned the plantation, personal property and money claims acquired from petitioner to C. L. Sively, and others, who, in return, assumed payment of petitioner's indebtedness in the amount of $9,336.44, and of the payment of Shelton's deferred purchase money notes in the amount of $46,063.55. The difference of $5,400 between petitioner's indebtedness assumed by Shelton and afterwards assumed by Sively and associates, represents a note of the petitioner due the Planters Bank of Clarksville, which was paid by or for the account of A. B. Shelton.
Sively and associates did not meet and discharge the obligations of and to the petitioner, the responsibility for which they assumed pursuant to the deed from Shelton to themselves when they became due. In December, 1920, after some negotiations, Sively and associates by quitclaim deed, conveyed, transferred, and assigned to the petitioner the plantation and money claims, but not the personal property originally sold and transferred by petitioner to Shelton, the fair market value of which was $1,500. As consideration for such conveyance, transfer and assignment, the petitioner gave to Sively and associates his promissory note for $1,500, bearing interest at 6 per cent per annum, and secured by lien upon the land quitclaimed, agreed to pay that part of his indebtedness which had been assumed by Shelton and later assumed by Sively and his associates in the amount of $9,336.44, together with the accrued interest thereon, marked paid and canceled the purchase money notes given by Shelton and assumed by Sively and associates in the amount of $46,063.55, and recorded the satisfaction of the trust deed which he held as security therefor. As further consideration for the conveyance and transfer of the plantation and claims to him, petitioner agreed to pay, and did pay, taxes on the plantation for the year 1920 in the amount of $740.
During the time in 1920 while the plantation was in the possession of Sively and associates, the price of cotton declined to low levels, the buildings and other improvements were neglected, and, in part, dismantled, and the property, as a whole, depreciated in value. During the same period there was a considerable decline in cotton land values in Mississippi.
February 12, 1920, petitioner entered into a contract to purchase a plantation in Arkansas for a consideration of $33,000. This contract provided for a cash payment of $6,600, at date, and for an additional cash payment of $6,600 on or before January 1, 1921, and that, after such second payment, the petitioner should give the vendor three notes in the amount of $6,600 each, payable on January 1, 1922, 1923, and 1924, respectively. A forfeiture clause of the contract provided as follows:
Should second party the petitioner fail to make the second payment of $6,600 on or before the 10th day of January, 1921, then the money this day paid is to be forfeited to...
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Applying the rescission doctrine.
...in had the contract not been made. The principles of rescission can be found in case law dating back to the 1920s; see, e.g., A. W. Shaw, 13 BTA 716 (1928).The requirements for a successful application of the doctrine are more clearly described in Rev. Rul. To have a valid rescission, two c......