Whitlow v. Commissioner of Internal Revenue

• Decision Date: 16 March 1936
• Docket Number: No. 10416.,10416.
• Parties: WHITLOW et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

82 F.2d 569 (1936)

WHITLOW et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 10416.

Circuit Court of Appeals, Eighth Circuit.

March 16, 1936.

J. B. Grice, of Washington, D. C., for petitioners.

Harry Marselli, Sp. Asst., to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and S. Dee Hanson, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before STONE, SANBORN, and THOMAS, Circuit Judges.

STONE, Circuit Judge.

This is a petition to review a deficiency redetermination of the Board of Tax Appeals as to the income tax of R. H. Whitlow for the year 1927. The taxpayer having died, this petition is by the administrators of his estate.

The controversy concerns the taxable profits from a sale of the stocks, interests, and liabilities of the taxpayer in certain insurance companies made in 1927. Prior to the sale, the taxpayer, J. W. Walker, and J. E. Felker were equal owners of the entire stock and interests in such companies. The sale was to Walker and Felker for a consideration of $150,000 of which one-half was cash and one-half in seventy-five promissory notes of the purchasers for $1,000 each, due monthly over seventy-five months. The dispute here is as to the value of these notes as part consideration of the sale in 1927. The notes were not returned for taxation in 1927. The Commissioner determined they were worth face value. The petitioners contend they had no taxable value at all or, at most, not more than one-third of face value. The Board sustained the Commissioner.

The statement in the opinion of the Board is as follows:

"The respondent has found that the promissory notes received by the decedent in 1927 were worth their face value when received and his finding in this respect is prima facie correct and must continue to be until overcome by a showing on the part of the petitioners to the contrary. We have the bare statements of two witnesses that those notes had no market value in 1927 but their testimony lacking, as it does, details upon which they based their conclusions so that we might form some independent opinion upon the subject matter ourselves, and in the face of the fact that there has never been a default — on the contrary the notes have all been paid at each maturity date — is far from convincing. One of the witnesses, who so testified, qualified his testimony by saying that he did not mean that the notes did not have a value of some kind — that he merely meant that they were not the type of notes ordinarily sold in the open market. He said it was reasonable to expect that the notes would be paid, depending upon the future success of the company. There is nothing in the record to indicate that it was not entirely reasonable to expect the successor companies to continue to be as successful as their predecessors had been. In this particular we must, upon the record, sustain the respondent's determination."

Petitioner's argument is divided into eight headings. One of these is that the findings of ultimate facts are not responsive to the issue. The ultimate fact found by the Board was to sustain the determination of the Commissioner that the notes were worth face value. There is no force in this contention.

Three of the other matters argued have to do with particular matters concerning the evidence. One of these is that the Board should not have considered evidence of matters subsequent to 1927 bearing on the value of the notes in 1927, meaning thereby evidence that the notes coming due (sixty out of the seventy-five) were promptly paid when due. The inquiry is as to the value of the notes in 1927. Where the search is for "value," the courts are rather generous in permitting introduction, even in trials before courts, of all evidence having any bearing on the matter. Generally speaking administrative or quasi judicial bodies are allowed even to depart from the rules of evidence enforced in the courts. While evidence that notes are promptly paid is by no means conclusive of the value of the notes when made, yet it certainly has some bearing upon their value at that time. Such bearing is strengthened where, as here, these payments began shortly (one month) after the notes were made and continued at similar brief intervals. The solvency of the maker of a note at the time the notes are made and afterwards is a vital factor in the value and the estimate of value thereof. These payments, three of which were in 1927, bore upon such solvency.

A second matter is stated as "The Board should as a duty take judicial notice of things relevant to the issue, and petitioners should not be required to prove a negative." The argument under this heading in the brief is entirely made up of statements as to a number of matters of which courts have taken judicial notice; such being, in the main, supported by citations. Nowhere are we apprised of the particular matters of fact or evidence here involved which petitioners think the Board should have judicially noticed. Some of the matters set forth as being the subject of judicial notice might be pertinent here, and others seem entirely foreign. We do not feel called upon to search among all of these and determine a pertinency and application which counsel has not sufficiently discovered to make clear. No argument is made in support of the contention that proof of a negative should not be required; no convincing argument to that effect could be made where, as here, the burden was on petitioners to prove that the Commissioner's determination of value was not sound.

The third matter is that the "testimony of witness should be considered as a whole, and uncontradicted evidence should not be ignored." The first part of this contention is leveled at the statement by the Board that "one of the witnesses, who so testified (that in his opinion there was no market value) qualified his testimony by saying that he did not mean that the notes did not have a value of some kind, that he merely meant that they were not the type of notes ordinarily sold in the open market." The argument is that the witnesses did not mean that the notes were worthless, but only that they had no salable value. It is difficult to discern any substantial distinction between this statement of the Board and the statement in the argument. If it is meant that the applicable statute,¹ in using the term "fair market value," restricts tax liability to such property as has a value in recognized market channels, the contention is not well founded. To adopt such restriction would narrowly limit the property so subject to taxation to the manifest violation of the intent of the statute. The intent of the statute clearly is to measure the amount realized from the disposition of the property by the value of the entire receipts — cash and other property. "Fair market value" is the measure to be applied to property other than money. Fair market value is a term and a measure long used in the law as applicable to property having no actual current market place see Olson v. United States, 67 F.(2d) 24, 29 (C.C.A. 8), and this statute uses the term thus broadly. So used, its definition is "the sum that would in all probability result from fair negotiations between an owner who is willing to sell and a purchaser who desires to buy." De Laval, etc., Co. v. United States, 284 U.S. 61, 72, 52 S.Ct. 78, 80, 76 L.Ed. 168; Brooks-Scanlon Corporation v. United States, 265 U.S. 106, 123, 44 S.Ct. 471, 68 L.Ed. 934; Olson v. United States, 67 F.(2d) 24, 29 (C.C.A.8). Any property which is the subject of sale is within the statute. Where the property is of a class, such as listed stocks and bonds, live stock, grain, etc., which has established markets where there are daily dealings, the "fair market value" is more easily and more accurately ascertainable, but the difference between such class and others is not that of the existence vel non of a "fair market value" but is solely one of the character and extent of proof.

The second part of this contention relates to the opinion of the witnesses that the notes had no market value in 1927. Petitioners concede that the Board may reject opinion testimony as to value, but insists that this cannot be done "unless the Board has better experience, facts or knowledge from which to form an independent opinion on the matter," citing Planters' Operating Co. v. Commissioner (C.C.A.8) 55 F.(2d) 583, 585; Dempster Mill Mfg. Co. v. Burnet, 60 App.D.C. 23, 46 F.(2d) 604, 606; Nichols v. Commissioner (C.C.A.3) 44 F.(2d) 157, 159; Pittsburgh Hotels Co. v. Commissioner (C.C.A. 3) 43 F.(2d) 345, 347; Boggs & Buhl v. Commissioner (C.C.A.) 34 F.(2d) 859, 861; Citrus Soap Co. v. Lucas (C.C.A.9) 42 F. (2d) 372, 373. We need not determine the accuracy of this statement as a rule of law, since the Board clearly had before it, as we will hereinafter show, abundant facts in the evidence to justify its conclusion as to the value of these notes.

The four other contentions may be treated together as amounting to a challenge of the sufficiency of the evidence to justify the finding of the Board as to value of these notes. In a review of action of the Board of Tax Appeals, where the challenge is as to the sufficiency of the evidence to sustain the findings of the Board, this court is confined to examination of "whether there was substantial evidence before the Board to support the findings made." Helvering v. Rankin, 295 U.S. 123, 131, 55 S. Ct. 732, 736, 79 L.Ed. 1343. The finding of fact with which we are here concerned is that of the ultimate fact that the notes were worth face value in 1927. The Board entered its investigation faced by the presumption that the determination of the Commissioner that such value existed was correct — that is, such determination made a prima facie case which threw the burden of proof to the contrary upon the taxpayer and which survived until overthrown by such proof. Helvering v. Taylor, 293 U.S. 507, 515, 55 S.Ct. 287, 79 L.Ed. 623;...