Thorpe v. Spaeth
| Decision Date | 07 November 1941 |
| Docket Number | No. 32852.,32852. |
| Citation | 211 Minn. 205,300 N.W. 607 |
| Parties | THORPE et al. v. SPAETH, Com'r of Taxation. |
| Court | Minnesota Supreme Court |
J. A. A. Burnquist, Atty. Gen., and P. F. Sherman, Asst. Atty. Gen., for respondent.
On certiorari to the board of tax appeals, the question presented is the proper construction to be given to § 19 and related sections of the Minnesota income tax act, L.1933, c. 405, 3 Mason Minn.St.1936 Supp. § 2394-1 et seq.
Relators, executors and trustees under the will of Margaret A. Thorpe, contest a deficiency assessment made by respondent, commissioner of taxation, in computing the tax upon their decedent's income. The assessment resulted from a disagreement over the proper basis for determining gain or loss upon the disposition of 25 shares of stock received by decedent on April 3, 1930, as a gift from her father. When received, the shares cost and had a fair market value of $1,296.30 per share. On January 1, 1933, the effective date of the income tax act, their fair market value was $719.69 per share. On May 22, 1935, when the corporation was dissolved, their liquidation value was $1,088.31 per share. Relators, using the 1930 value as the basis for computing gain or loss, deducted $207.99 as capital loss on each share. Respondent, however, concluding that the fair market value as of January 1, 1933, should be taken as the basis, assessed a deficiency capital gain of $368.62 per share. Decision of the proper basis for determining gain or loss on these facts is the problem of this appeal.
With respect to gain and loss, the Minnesota income tax act, L.1933, c. 405, in § 16 (a) provides that gain shall be the amount by which the sum realized upon disposition of property exceeds the adjusted basis of either § 18 or § 19, and loss represents the amount by which the sum realized is less than such adjusted basis. In application, §§ 18 and 19 are mutually exclusive. Section 18 applies only to the disposition or sale of property "acquired on or after January 1, 1933," while § 19 applies only to the disposition or sale of property "acquired before January 1, 1933." Since the taxpayer here acquired her stock before that date, § 19 must supply the basis for determination of the gain or loss. Its full text, as originally enacted, is as follows "The basis for determining the gain or loss from the sale or other disposition of property acquired before January 1, 1933, shall be the fair market value thereof on said date except that, if its costs to the taxpayer (or, in the case of inventory property, its last inventory value) exceeds such value, the basis shall be such cost (or last inventory value)."
Seemingly, the language of this section supports the position taken by respondent in adopting the fair market value as the basis for assessing a capital gain to relators' decedent. Since property acquired by gift can have no cost to the taxpayer, and there being no question of inventories involved, respondent urges that the exceptions to this section cannot operate.
Relators, however, oppose this view and alternatively contend, either, that the fair market value on the date of acquisition, or, that the cost to the donor, should be adopted as the basis. For taxpayers receiving gifts after January 1, 1933, § 18 (b) specifically authorizes a use of the donor's basis. Whether § 19 can be similarly construed is the main question here presented. However, in answer to relators' first contention, something need be said.
In support of their first contention, relators rely upon analogies presented under federal law. They assert that as used in § 19, the word "costs" means fair market value at the date of gift. Though certain language of some federal cases seems to support this view, it should be observed that those courts were faced with a much different problem. Because "cost" was the only statutory basis stated, either they had to say that fair market value at date of gift controlled, or, there being no "cost" for gifts, the gain basis was zero. Clearly, those courts wished to avoid such a constructional blight upon the will of Congress. See Appeal of Hub, Inc., 3 B.T.A. 1259; Appeal of Gilbert Butler, 4 B.T.A. 756; Harry F. Robertson v. Commissioner, 5 B.T.A. 748; John F. Prindible v. Commissioner, 16 B.T.A. 187; Robinson v. Commissioner, 6 Cir., 59 F.2d 1008; cf. Hartley v. Commissioner, 295 U.S. 216, 55 S.Ct. 756, 79 L.Ed. 1399; Bankers' Trust Co. v. Commissioner 24 B.T.A. 10; Heiner v. Tindle, 276 U.S. 582, 48 S.Ct. 326, 72 L.Ed. 714; Lucas v. Daniel, 5 Cir., 45 F. 2d 58.
Here, however, "cost" to the taxpayer is not the only basis stated by the statute, nor does respondent contend that the gain basis is zero. Since there can be no "costs" to the taxpayer where the property has been acquired by gift, therefore, it is respondent's argument that the exceptions to the general rule of § 19 cannot apply. In refutation of this, the federal cases are not pertinent.
Section 18, to which relators look for encouragement, very explicitly adopts the federal rule that a donee may use his donor's basis in computing gain or loss. "Cost to the taxpayer" is stated as the general rule except, among others, as to property "acquired by gift," which "shall be the same as it would be if it were being sold or otherwise disposed of by the last preceding owner not acquiring it by gift." Section 19, however, does not include this special provision as an exception to the general rule of fair market value. But upon the premise that § 19 is ambiguous and defective, relators point to § 16 (b) as evidence in support of their view that, notwithstanding the seemingly explicit language of § 19, the legislature nonetheless intended a donee of property acquired before January 1, 1933, to use his donor's basis.
That portion of § 16 (b) here material consists of five sentences, which will be numbered for convenient reference: ...
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