Young v. Commissioner of Internal Revenue, 15.
| Decision Date | 17 November 1941 |
| Docket Number | No. 15.,15. |
| Citation | 123 F.2d 597 |
| Parties | YOUNG v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Second Circuit |
Frederic P. Warfield, of New York City, for petitioner.
Samuel O. Clark, Jr., Asst. Atty. Gen., and J. Louis Monarch and S. Dee Hanson, Sp. Assts. to the Atty. Gen., for respondent Commissioner of Internal Revenue.
Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
In 1936 the taxpayer, Minnie K. Young, held 175 shares of participating preference stock of the International Match Company which she had purchased in 1925, 1926 and 1929 at a total cost of $9,972.50. She claimed a deduction of that amount from her 1936 gross income on the ground that the shares became worthless in that year. She had sought to take the same deduction from her 1934 income because of worthlessness accruing during that year, but no loss for 1934 was allowed by the Commissioner because: "the present knowledge of the affairs of the company and the value of its assets are insufficient to show that the participating preferred stock became worthless in 1934 * * *". In connection with the return for 1934 the petitioner testified that at a conference between herself and a revenue agent the agent stated that the loss "could not be taken for 1934 but should be taken in 1936 when the loss would became total on November 4, 1936 provided the petitioner did not participate in the reorganization by exchange of such shares for Imco shares." In John B. Marsh v. Commissioner, 38 B.T. A. 878, the Board held that under circumstances practically identical with those here participating preference stock of International Match Company became worthless in 1932. In the case at bar the Board in substance adopted and reiterated its findings in the Marsh litigation.
On April 13, 1932, an equity receiver of the assets of the International Match Company was appointed by the United States District Court for the Southern District of New York and on April 15, 1932, there was a voluntary adjudication of the International Match Company in bankruptcy by that court.
In May, 1932, the range of prices for the stock on the New York Stock Exchange was high — 37½ cents, and low — 25 cents per share. In November and December of that year the over-the-counter prices in New York, Boston and Philadelphia varied from a bid price of from 6¼ to 20 cents, and from an asked price of from 12½ to 37½ cents per share. During those months sales of the stock through Adrian H. Miller & Sons in New York and R. L. Day & Co. in Boston varied from 24 cents to about 1 cent per share for a lot of 100 shares. The cost of selling the shares at this time equalled or exceeded the prices that could be obtained.
In a letter dated October 7, 1932, from the chairman of the Protective Committee for holders of the participating preference stock the holders were informed that an investigation then being made of International and the Swedish Match Company, which held the common stock of the former company, "would probably show that the liabilities of International were substantially in excess of its assets."
On July 1, 1936, in order to facilitate the settlement of the intercompany claims of subsidiaries and other companies involved in the bankruptcy of International Match Company and the purchase of certain assets of the bankrupt corporation and of one of its subsidiaries, the Swedish Match Company, owner of nearly all the common stock of International, offered to provide for settlement of claims of holders of the preference stock. The offer contemplated the formation of a corporation known as Imco which would offer to exchange one participating certificate in Imco for two shares of International. The taxpayer did not avail herself of the option, which expired November 4, 1936. The bid and asked prices during the period within which she might have exercised her option varied from 15 to 75 cents for each certificate to an asked price of from 30 to 100 cents therefor; in other words, the highest price the certificates of Imco issued against the 175 shares might have realized during 1936, if the option had been exercised, would have amounted to .75 × 87.50 — a commission of $5.25, or a net of $60.38.
Kreuger, the central figure of International and its group of affiliated companies, shot himself and died on March 12, 1932. Investigations...
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