Stimpson v. Commissioner of Internal Revenue

• Decision Date: 01 March 1932
• Docket Number: No. 9219.,9219.
• Citation: 55 F.2d 815
• Parties: STIMPSON v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

55 F.2d 815 (1932)

STIMPSON v. COMMISSIONER OF INTERNAL REVENUE.

No. 9219.

Circuit Court of Appeals, Eighth Circuit.

January 25, 1932.

Rehearing Denied March 1, 1932.

William M. Fitch, of St. Louis, Mo. (George H. Moore, of St. Louis, Mo., on the brief), for petitioner.

Norman D. Keller, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Hartford Allen, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.

Before VAN VALKENBURGH, BOOTH, and GARDNER, Circuit Judges.

BOOTH, Circuit Judge.

This is a petition for review of an order of the Board of Tax Appeals entered September 30, 1930, as amended by an order of February 12, 1931, redetermining deficiencies in the income taxes of petitioner for the calendar years 1922, 1923, and 1924. The two latter years only are here involved.

The question presented is whether certain transactions by petitioner relative to securities owned by her were sales of said securities resulting in taxable gain to petitioner.

The relevant statutes are section 213 (a) of the Revenue Act of 1921 (c. 136, 42 Stat. 227, 237), and section 213 (a) of the Revenue Act of 1924 (c. 234, 43 Stat. 253, 267, 26 USCA § 954 (a). The two sections are substantially identical; the former reading, so far as here material, as follows:

"Sec. 213. That for the purposes of this title * * * the term `gross income' —

"(a) Includes gains, profits, and income derived from * * * sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property. * * *"

The facts were stipulated; the more important are substantially as follows: Mrs. Stimpson, the petitioner, during the time of the transactions involved, was an inhabitant of Missouri. On May 14, 1923, she was the owner of certain securities, having been the owner of some of them since August 1, 1920, and of others since July 13, 1921. The securities were in the custody of the State National Bank of St. Louis, Mo. On May 14, 1923, she wrote the following letter:

"St. Louis, Missouri. May 14, 1923.

"State National Bank, St. Louis, Missouri.

"Gentlemen: You are holding for my account in your safe keeping department certain bonds and other securities.

"I hereby authorize you to sell these bonds and securities on or between this date and May 30th and place proceeds of the same to my account, and I also hereby authorize you to purchase for my account United States Treasury Certificates of such issue as you may be able to buy, charging the amount to my checking account.

"Further, sometime during the month of June I would like for you to purchase back the first mentioned bonds and securities for my account and pay for the same with the proceeds of the sale of the United States Treasury Certificates purchased for me as authorized above.

"Yours truly "Signed Dorothy Baker Stimpson.

"P. S. — You are authorized to charge my account one-eighth of one per cent., covering the above transactions, as your commission.

"Signed Dorothy Baker Stimpson."

The bank received the letter and acted as follows: It placed a valuation upon the securities, using the market value where available; and, where not available, used an approximate value based upon the par value, income produced, supposed solvency of maker, and other information. The total amount of such valuation was $104,000. The bank caused this amount to be entered as a credit on the books of the bank in favor of the petitioner, and caused the securities and their respective valuations to be entered on the books of the bank as assets of the bank amounting to $104,000. The bank then charged the account of petitioner with $104,000, took out of its assets United States Treasury certificates then rated at $104,000, and placed them in the hands of an officer of the bank for petitioner. This same officer of the bank had theretofore had the custody of the securities owned by Mrs. Stimpson. Thereafter, and in June, 1923, the bank took back into its assets the Treasury certificates valued at $104,000 and placed a credit to the account of Mrs. Stimpson of $104,000. The bank then charged Mrs. Stimpson's account with $104,000, and the said officer of the bank thereafter held the said securities for Mrs. Stimpson. The various entries and credits were entered as parts of the same transaction.

Mrs. Stimpson did not know at the time the details of the transactions except as they appeared on her monthly statements from the bank, and these did not show the source from which the credit items had been obtained nor to whom the debit items had been paid. Mrs. Stimpson paid the bank one-eighth of one per cent. of $104,000 for handling the transactions.

Transactions similar in substantial respects took place in May and June, 1924, Mrs. Stimpson having written to the bank in May, 1924, a letter similar to the letter of May 14, 1923.

The valuation placed on the securities in 1924 (some additional securities having been added) was $138,000. June 2, 1924, the bank sent to Mrs. Stimpson, who was then in Paris, France, the following letter:

"State National Bank "St. Louis, Mo. June 2nd, 1924.

"Mrs. Dorothy Baker Stimpson, 58 Rue de Vaugirard, Paris, France.

"Dear Mrs. Stimpson: We enclose statement of your account to the close of business May 31st, 1924, together with cancelled checks and memorandums showing the various credits. The withdrawal of $5,100.00 on the 31st ult. was made by us and the amount invested in U. S. Treasury certificates. We have sold the certificates again and your account has been credited $5,100.00 to cover.

"We charge your account $1,000.00 and send you, herewith, our two drafts on the American Exchange National Bank of New York for $500.00 each payable to your order.

"We also handled, in the same manner as last year, your securities left with us for safekeeping. We disposed of the securities, with the exception of the Liberty Bonds, at the par value of $138,000.00, investing that amount in U. S. Securities. We have repurchased the U. S. securities and have used the amount to buy back your securities so that same stand just as they were before. In your letter of May 14, 1923, you authorized us to charge your account 1/8% of 1% as our commission covering this transaction. We have, therefore, charged your account $172.50.

"Yours very truly "Signed E. W. Kleinschmidt "Assistant Cashier."

Mrs. Stimpson had no information as to the details of the transactions of 1924 except as disclosed by the foregoing letter.

The United States Commissioner of Internal Revenue later examined these various transactions; concluded that they involved sales of securities; ascertained the original cost to Mrs. Stimpson of the securities; computed the gains made by reason of said sales; included said gains in the income account of Mrs. Stimpson for the years mentioned; and determined a deficiency of income taxes of $1,638.05 for the year 1923 and of $4,111.61 for the year 1924. The Board of Tax Appeals affirmed the Commissioner by its decision of May 23, 1930 (19 B. T. A. 1059), as amended by its order of February 12, 1931. The present petition for review followed.

The question presented for consideration of this court is whether the above-outlined transactions of 1923 and 1924 constituted valid and effective sales of the petitioner's securities which will support the income tax.

From the elaborate and interesting...