Shillinglaw v. Commissioner of Internal Revenue

• Decision Date: 04 October 1938
• Docket Number: No. 7463.,7463.
• Citation: 99 F.2d 87
• Parties: SHILLINGLAW v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

99 F.2d 87 (1938)

SHILLINGLAW v. COMMISSIONER OF INTERNAL REVENUE.

No. 7463.

Circuit Court of Appeals, Sixth Circuit.

October 4, 1938.

Llewellyn A. Luce, of Washington, D. C., for petitioner.

A. F. Prescott, Jr., of Washington, D. C. (Robert H. Jackson, Sewall Key, and E. W. Pavenstedt, all of Washington, D. C., on the brief), for respondent.

Before HICKS, SIMONS, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This is a petition to review an order of the Board of Tax Appeals redetermining a deficiency in petitioner's income taxes for the calendar year 1928 in the amount of $1,230.47. 32 B.T.A. 1235.

The question at issue is whether the petitioner is subject to tax on the sale of capital assets under the provisions of Section 101 of the Revenue Act of 1928, Chap. 852, 45 Stat. 791, 26 U.S.C.A. Section 2101 (a) (b) (c), 26 U.S.C.A. § 101 note. The parties have stipulated that the decision in this case will control the cases of H. H. Campbell, deficiency $6,423.43; W. T. Hale, Jr., deficiency $1,593.33; P. D. Houston, deficiency $1,710.35; Geo. A. Shwab, deficiency $5,208.04; Whitefoord R. Cole, deficiency $5,807.54; H. G. Hill, Sr., deficiency $6,323.39; J. J. Gray, Jr., deficiency $4,184.81; R. W. Hale, deficiency $2,097.34.

The applicable statute provides that a taxpayer other than a corporation, may at his election, in lieu of all other income taxes, pay twelve and one-half percentum of his capital net gain, which is defined as arising from the sale or exchange of capital assets consummated after December 31, 1931, and such assets are defined to be "property held by the taxpayer for more than two years" excluding stock in trade or that ordinarily included in inventories or property held by the taxpayer primarily for sale in the course of his trade or business.

On January 2, 1926, Rogers Caldwell entered into an executory contract with M. E. Singleton for the purchase of a minimum of 100,540 shares of the total outstanding capital stock of 200,000 shares of the Missouri State Life Insurance Company par value $10 per share. Singleton and his family owned 86,000 shares and were to be paid $100 per share. The 64,540 remaining shares from other stockholders were to be delivered at $75 per share, $2,000,000 of the purchase price to be paid "as of February 1, 1926, with interest adjusted accordingly" and the balance of $5,540,502 over a period of years. Singleton was to have thirty days for the acquisition and delivery of the stock, and Caldwell was to have thirty days for an actuarial examination and valuation of the assets of the Insurance Company with a conditional extension of fifteen days from February 1, 1926, and an additional five days to procure a legal opinion as to title.

A syndicate, of which the taxpayers herein mentioned were members, was formed between January 2 and January 15, 1926, for the purpose of acquiring one-third interest in the contract. Each agreed to pay in a given sum which was later done through the American National Company, which Company, as a member of the syndicate, paid in $250,000.

On January 29, 1926, Singleton and Caldwell selected the Guaranty Trust Company of New York trustee to hold the Missouri State Life stock until the agreed purchase price was paid. It was stated in the trust agreement that Singleton sold to Caldwell, at $100 each, 86,000 shares belonging to himself and family and agreed to deliver to the trustee for $75 a share not less than 14,540, nor more than 64,540 shares belonging to others. The Singleton stock was to be identified by Schedule "A" attached to the trust agreement and that of others by Schedule "B."

It was stated in the agreement that $2,000,000 was to be paid to the trustee on the purchase price on or before February 15, 1926, with 5¼ percent interest from February 1, 1926, and the agreement became effective upon the delivery to the First National Bank of St. Louis, Missouri, of the stock and the payment of $2,000,000.

On January 29 or 30, 1926, Caldwell notified an officer of the American National Company, agent of the syndicate, that the agreement with the Guaranty Trust Company had been executed.

Before February 1, 1926, 100,540 shares of the stock had been deposited with the St. Louis bank. On February 5, 1926, Caldwell entered into a contract with the First National Company, The American National Company and Caldwell & Company...