Westlake Public Market v. Commissioner of Int. Rev.

• Decision Date: 20 February 1934
• Docket Number: No. 7270.,7270.
• Parties: WESTLAKE PUBLIC MARKET v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

69 F.2d 291 (1934)

WESTLAKE PUBLIC MARKET v. COMMISSIONER OF INTERNAL REVENUE.

No. 7270.

Circuit Court of Appeals, Ninth Circuit.

February 20, 1934.

W. B. McCord and Kerr, McCord & Carey, all of Seattle, Wash. (S. N. Greenleaf, of Seattle, Wash., of counsel), for appellant.

Sewall Key and Helen R. Carloss, Sp. Assts. to Atty. Gen., for respondent.

Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judges.

WILBUR, Circuit Judge.

Petitioner seeks a review of the order of the Board of Tax Appeals made on its application for a reversal of the decision of the Commissioner of Internal Revenue fixing its income tax for the year 1926. The amount of tax involved is $9,505.62. This represents the tax on profit of the petitioner on the sale of a leasehold interest in real estate. The sale was made in 1926, and the price received was $200,000. The question is how much of the purchase price was profit. The petitioner contends that in determining the profit or gain there should be deducted from this selling price the sum of $50,000 which it claims is the cost to it of the lease at the time it was acquired on June 30, 1916. It is conceded that section 204 (a) of the Revenue Act of 1926 (26 USCA § 935) controls and that the basis for determining the gain or loss from the sale in question is the difference between the cost of the property and the price for which the property was subsequently sold. That section expressly so provides: "Sec. 204. (a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that * * *"

Where the property is acquired after December 31, 1920, section 203 (b) (4) and section 204 (a) of the act, 26 USCA §§ 934 (b) (4), 935, provide a special rule applicable to the transfer of property to a corporation in exchange for its stock. This rule however, is not applicable in the case at bar because the property was acquired by petitioner prior to December 31, 1920.

It appears from the statement of the evidence that prior to April 4, 1916, Thomas Boyd owned and conducted a market in Seattle, Wash., known as the Westlake Public Market that the building in which the business was conducted was sold and Mr. Boyd entered into negotiations for another market site; that on April 4, 1916, Thomas Boyd and his attorney, Ivan Hyland, caused the petitioner to be incorporated; Boyd and Hyland were the sole trustees of the corporation and managed its concerns and affairs until June 30, 1916. On April 20, 1916, Boyd secured the fifty-year lease in question from Samuel L. Bowman and wife upon certain vacant lots situate in the city of Seattle, Wash., and immediately began the erection of a new market building thereon. The only considerations for the lease were the covenants of the lessee therein contained, no bonus being paid for the lease. After the erection of the market building was begun, Boyd, on June 30, 1916, transferred the lease to the petitioner, a newly formed corporation, in consideration of all its capital stock which was issued to Thomas Boyd and his wife. The corporation had no property and the stock had no value, and after transfer merely represented whatever value there was in the leasehold. The Board of Tax Appeals held that the lease cost petitioner nothing. It is conceded by both parties that the cost to the petitioner is a question of fact for the determination of the Board of Tax Appeals see Keystone Steel & Wire Co. v. Commissioner (C. C. A.) 62 F. (2d) 458; Fidelity Storage Corp. v. Burnet, Commissioner, 61 App. D. C. 121, 58 F.(2d) 526; Matern v. Commissioner (C. C. A.) 61 F.(2d) 663; American Sav. Bk. & Trust Co. v. Burnet, 45 F.(2d) 548 (C. C. A. 9); Atlantic Bank & Trust Co. v. Commissioner (C. C. A.) 59 F.(2d) 363; Avery v. Commissioner (C. C. A.) 22 F.(2d) 6, 55 A. L. R. 1277; Refling v. Burnet (C. C. A.) 47 F.(2d) 859, but the petitioner contends that, because there is no substantial evidence to support the finding of the Board of Tax Appeals, it is erroneous as a matter of law. Petitioner also contends that the finding of the Board of Tax Appeals is against the great weight of the evidence but that question is not for our consideration. The decisions cited by the petitioner to support its contention that findings of a lower court will be set aside when they are against the great weight of the evidence have no application to an appeal from a decision of the Board of Tax Appeals. It has been uniformly held that, if there is substantial evidence to support the conclusion of the Board of Tax Appeals on a question of fact, this court cannot interfere.

The position of the petitioner as to the sufficiency of the evidence may be summed up as follows:

The petitioner having acquired the lease in consideration of the issuance of its stock, the stock deriving its value from the leasehold conveyed to the corporation and representing that value, it must be held that the cost of the lease to the corporation is the value of its stock after the transfer of the lease to the corporation which is in turn the fair market value of the leasehold transferred to the corporation by Boyd. On this basis it is claimed that the only evidence adduced before the Board as to the value of the leasehold was that of three real estate men who testified that in their opinion the leasehold was worth $50,000. It is therefore claimed that it was the duty of the Board of Tax Appeals to accept this uncontradicted testimony.

It appears from the opinion of the Board that they rejected this testimony for reasons which will be presently stated. If there was substantial evidence to support the conclusion of the Board of Tax Appeals it is entirely immaterial so far as this court is concerned whether there is other...