Stiles v. Commissioner of Internal Revenue, 6942.

• Decision Date: 13 April 1934
• Docket Number: No. 6942.,6942.
• Parties: STILES v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

69 F.2d 951 (1934)

STILES v. COMMISSIONER OF INTERNAL REVENUE.

No. 6942.

Circuit Court of Appeals, Fifth Circuit.

April 13, 1934.

Douglas D. Felix, of Miami, Fla., for petitioner.

Frank J. Wideman, Asst. Atty. Gen., Sewall Key and Carlton Fox, Sp. Assts. to Atty. Gen., and E. Barrett Prettyman, Gen. Counsel, Bureau of Internal Revenue, and F. A. Surine, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.

Before BRYAN, FOSTER, and HUTCHESON, Circuit Judges.

FOSTER, Circuit Judge.

The Commissioner of Internal Revenue determined a deficiency of income taxes amounting to $18,735.64 for the year 1925 against David Afremow. Afremow died on February 6, 1928. His widow qualified as executrix and petitioned the Board of Tax Appeals for a review of the Commissioner's determination. Later, she resigned, and D. C. Stiles, Jr., was substituted in her place. The Board redetermined the deficiency to be $3,250.65. We may refer to the opinion of the Board for the facts in detail. 25 B. T. A. 1246. Petitioner complains only of the rulings of the Board in respect of three transactions, which were as follows:

(1) On April 21, 1925, Afremow purchased four lots of ground in Dade county, Fla., for the price of $135,000, of which he paid $60,000 in cash and executed a first mortgage for $75,000. He sold the property on July 17, 1925, for $275,000, of which the purchaser paid $65,000 in cash, assumed the existing first mortgage of $75,000 and executed a second mortgage for $135,000, evidenced by four notes, in about equal amounts, payable in from one to four years, with 8 per cent. interest, payable semiannually.

(2) Afremow owned an undivided one-half interest in three lots in the same county, which property had been acquired in 1921, at a cost of $76,500, of which $36,500 was paid in cash and a first mortgage of $40,000 represented the balance. This property was sold in February, 1925, for $125,000, of which $35,000 was paid in cash, the first mortgage of $40,000 was assumed by the purchaser, and a second mortgage of $50,000 was executed, evidenced by ten notes of $5,000 each, of which two were respectively payable in one, two, three, four, and five years, with interest at 8 per cent., payable semiannually.

(3) Afremow owned an undivided one-half interest in another lot in the same county, which was acquired in 1921 at a cost of $10,000, of which $4,000 was paid in cash and a first mortgage for $6,000 was given. This property was sold in April, 1925, for $30,000, $10,000 in cash, the purchaser assuming the first mortgage or $6,000 and giving a second mortgage of $14,000, evidenced by six notes, of which two were respectively payable in one, two, and three years, with interest at 8 per cent. per annum.

In making his income tax returns for 1925, Afremow put down his interest in these second mortgage notes as being without fair market value, returned them as profits to be received in the future, and did not return any part of them as profit received in 1925. The Commissioner gave the second mortgage notes in the first transaction a fair market value of $33,250. The Board reduced this to $25,000, approximately 18½ per cent. of the face value. On the second transaction the Commissioner gave the one-half interest in the second mortgage notes a fair market value of $25,000. The Board reduced this to $5,000, 20 per cent. of the face value. On the third transaction the Commissioner gave the one-half...