14 B.T.A. 374 | B.T.A. | 1928
Lead Opinion
The first issue is whether taxable profit was realized by petitioner, a stockholder of the Old Dominion Oil Co., and, if so, how much, in thé transactions in which oil leases were acquired from the Cliff Petroleum Co. and the Southwestern Petroleum Co., under an arrangement in which funds were furnished by stockholders of the Dominion Company for the purchase of the leases and later stock was issued by the Dominion Company to these stockholders on
While additional evidence has been presented in this proceeding which we did not have before us in a consideration of the Bulleit case, we fail to find anything which would alter the conclusion there reached. Borne confusion exists in the record because of the fact that the original plan of financing the acquisition of the leases contemplated the formation of two corporations and the payments which were made were on the basis of subscriptions which were signed for the capital stock of these proposed corporations. The corporations were not formed, but a revised plan was adopted whereby the stockholders who became parties to the transaction were to receive stock of the Dominion Company and cash instead of stock of the proposed corporations and cash when the transaction was finally completed. This agreement with respect to the payment of cash to the stockholders was likewise not followed, though the record is not clear as to Avhat supplemental agreement was entered into, if any, other than in the final settlement with the stockholders, the stockholders elected to take stock of the Dominion Company instead of cash in satisfaction of the liability on account of the funds furnished by them. That is, instead of receiving $200,000 in cash from the Dominion Company, the stockholders elected to take stock of the Dominion Company of a par value of $200,000. In addition, they also received stock of a par value of $200,000 as contemplated in the resolution of the stockholders dated August 17, 1918.
The petitioner objects to the decision in the Bulleit case and urges that this transaction amounted to a contribution to the capital of the Dominion Company by the stockholders on account of which stock was to be issued, and that any attempt to impose a tax on account of this transaction disregards substance, and looks only to the form of what transpired. The petitioner further contends that the opinion is in error in considering that the stockholders acquired the leases and later sold them to the Dominion Company. The answer to this question presents the usual difficulty of distinguishing between form and substance, and this is peculiarly true in this instance for the reason that deviations were made from the form which the original transaction was supposed to take and these changes were not always reduced to formal agreements, or at least evidence to that effect was not presented. We are in entire accord with the petitioner that
As to the contention made that the decision in the Bulleit case is in error in considering that the leases were acquired by the stockholders, we deem it a sufficient answer to say that even if we should concede that title to the leases was not acquired, the stockholders at least
This leaves for consideration the question as to the amount of profit realized by the petitioner. His original investment was $8,000. In addition he acquired certain stock on which the 40 per cent obligation had not been met and paid on account thereof $1,800. Also, he purchased 47% rights for which he paid $17,612. This made a total investment of $27,412. In the Bulleit case we found the fair market value of this stock to be $1.75 at the time of receipt. While in this proceeding additional evidence was presented as to the value of this stock, such as the sale of rights, sale of stock prior and subsequent to July 31,1919, the basis used in the consolidation which was effected between the Dominion Company and the Belle Point Oil Co., and other evidence of value, we are of the opinion that the fair market value of $1.75 as determined in the Bulleit case is supported by the evidence, and it is accordingly sustained. This makes a total value for that which was received of $50,960 (29,120 shares at $1.75 per share), or a taxable profit realized on the transaction of $23,548 ($50,960 less $27,412).
The question is whether this amount of $18,130.66 which was received by the petitioner in 1920 and is still retained by him was properly included by the respondent in petitioner’s gross income for 1920. The petitioner contends that there could have been no gain to
It is further urged that the amount received by the petitioner should not be taxed- in 1920 for the reason that it was paid by the committee in violation of their duties as trustees and that it could only be income to the petitioner when it was finally decided that it unconditionally belonged to him. Again, we find ourselves unable to agree with the petitioner’s contention. The petitioner received the amount in question in 1920 and up to the time of this hearing was still retaining it. We must determine income-tax liability on the basis of what occurred rather than on the basis of what might have taken place. Anna M. Harkness, 1 B. T. A. 127. Had the stockholders objected before payment and had payment not been made until the controversy was finally settled, we certainly could not have said that the petitioner, who reported on the receipts and disbursements basis, should have reported taxable income prior to its receipt. But what happened was that the petitioner received the amount in question in 1920 as representing the profits of a venture to which he was a party and we do not think that the more fact that the payment has been questioned is sufficient to justify our saying that this was not taxable income when received. The evidence introduced with respect to the agreement for the settlement of the controversy between the trustees and the stockholders, which was awaiting the approval of the court
The next issue relates to salaries and commissions of petitioner from the Kentucky Wagon Manufacturing Co. for 1919 and 1920. With respect to the salary or commission item of $7,892/T5 for 1919, the petitioner conceded, in his brief filed after the hearing, that the evidence establishes that the respondent’s treatment of this item is correct and, accordingly, abandoned the error assigned on account thereof. As to the item of $14,942.64, commissions earned in 1920 and placed to petitioner’s credit at the end of 1920, but neither paid nor made unconditionally available for payment in 1920, we are of the opinion that the respondent was in error in including this item as a part of petitioner’s taxable income for 1920.
Evidence was introduced at the hearing as to whether petitioner received a salary of $5,000 for 1920 in 1920 or 1921, the respondent having considered this salary as income for 1920 and the petitioner not having reported it as income in any year, though seeking at the hearing to show that it was not paid until 1921. The petitioner failed to avail himself of the privilege granted to amend his petition to make this properly an issue and in his brief stated that insufficient data was available to make necessary a change in the Commissioner. The Commissioner’s action with respect to this point will accordingly not be disturbed.
The error assigned by the petitioner with respect to dividends received by him in the amount of $6,338.94 from the Old Dominion Oil Co. in 1920, is likewise easily disposed of in that the respondent, in his brief and at the final hearing, conceded that these dividends were nontaxable, and that his action in subjecting them to tax was in error. Prior to this confession of error, the parties entered into the following stipulation:
It is agreed by the parties to this appeal that in the year 1920, in the Commissioner’s determination of dividends received from the Old Dominion Oil Company, the amount was understated, through clerical error, in the sum of $1,027.78, and it is also agreed that in the Commissioner’s determination of dividends received by the appellant in 1920, from corporations other than tho Old Dominion Oil Company, that the dividend amount was understated through clerical error in the amount of $1,216.00.
This agreement will, of course, require no correction with respect to dividends received from the Dominion Company, but appropriate adjustment, consistent with the stipulation, should be made on
The Commissioner also conceded at the hearing that the petitioner in 1919 had failed to take deductions for interest in the amount of $2,798.51 and for charitable contributions in the amount of $200 to which he was entitled. Correction should be made accordingly.
With respect to the plea of the statute of limitation made by the petitioner for 1919, the petitioner appears to have overlooked the fact that a waiver was filed for 1919 which extended the time for the determination, assessment and collection of taxes for such year until March 15, 1926, and that such waiver was properly introduced in evidence. ' Since the deficiency notice was mailed on December 8, 1925, the deficiency is not barred by the statute of limitations. As to 1920, the return was filed on March 15,1921, and the deficiency notice mailed on December 3,1925, which was within the five years provided by statute for making such determination. The deficiency for 1920 is accordingly likewise not barred by the statute of limitation.
The last issue relates to the allegation on the part of the Commissioner that the penalty for fraud, or in the alternative, for negligence, should be imposed on account of the preparation of the returns for 1919 and 1920. In his brief the respondent conceded, and we think properly so, that the evidence is insufficient to establish that the petitioner was actuated by fraudulent intentions in the preparation of these returns. This leaves only the question of negligence for consideration.
With respect to 1919, errors were undoubtedly made in the preparation of the return for this year, but we are unable to say that these occurred on account of negligence. Certainly, for example, in the instance of the profit which we have determined on the lease-acquisition transaction, we can well see how the petitioner might well have omitted this item from his return because he did not consider that taxable profit had arisen therefrom. In the instance of the other major item omitted, profit from the sale of Flesher Petroleum stock, many transactions, were involved, and not only had the records pertaining to these transactions been inadvertently destroyed, but also the petitioner’s confidential secretary who was relied upon for furnishing information to him and who assisted in the preparation of this return had died some two years prior to the hearing. We are thus left with little more evidence than that less income was reported than should have been, and the petitioner is at a decided disadvantage in making a complete defense to the increase shown. On the whole, we are not satisfied that negligence has been shown for 1919, and, accordingly, we are of the opinion that no penalty should be imposed on account of the deficiency for such year. As to 1920, we
Judgment will be entered wider Bule 50.