161 F. Supp. 365 | S.D.N.Y. | 1958
The taxpayers reported for Federal income tax purposes certain receipts (hereinafter more fully described) for the years 1948 and 1949 as capital gains. The Commissioner of Internal Revenue determined that they constituted ordinary income and assessed appropriate deficiencies which were paid. Refund thereof is sought in this suit.
Two issues of law and one of fact are presented: are the receipts in question taxable to plaintiffs as long term capital gains; would they have been so taxable to the entity from which taxpayers acquired the right thereto; and was the transaction by which said right was obtained a gift or a purchase.
The background facts have, for the most part, been stipulated. In 1946 International Anemostat Holding Company, Ltd., a British corporation, (hereafter referred to as the British company) entered into a contract with Ane-mostat Corporation of America, a Delaware corporation (hereafter referred to as the American company) by the terms of which the British company agreed to transfer to the American company certain rights in U. S. patents and applications for patents, described in detail in the contract, in consideration of which
In 1948 the British company assigned its rights to receive such percentage payments to Enterprise Operating Corporation, a New York corporation, which, within a matter of days, assigned said rights to a partnership consisting of all the plaintiffs herein with the exception of Elizabeth C. Rust-Oppenheim.
During the calendar years 1948 and 1949 the percentage payments collected by the partnership were $19,668.66 and $39,075.18, respectively. It is whether the distribution of said sums to the partners is taxable to them as ordinary income or as long-term capital gains which is the ultimate problem to be resolved.
Section 117 of the Internal Revenue Code of 1939 defines, insofar as here material, capital assets as “property held by the taxpayer * * * ”
The adjusted basis for determining gain or loss by a donee is the same (with an exception not here material) as that of the donor and in' Commissioner of Internal Revenue v. Hopkinson, 2 Cir., 1942, 126 F.2d 406, 411 the court held that proceeds from the sale or exchange of property by the donor are taxed to the donee in the .same way the donor would have been taxed had he, rather than the donee, received them. In plaintiffs’ view the result reached in that case is correct, but the reasoning is fallacious. They would have the holding extended to themselves, notwithstanding the material factual dissimilarity and the clear language of the court to the contrary.
.Undoubtedly with a view to bring themselves within the holding in Hopkinson case, supra, plaintiffs in their brief for the first time intimate that the transaction pursuant to which they acquired the rights of the British company under the 1936 agreement with the American Company partook of the nature of a gift. The evidence clearly negatives any 'donative intent and the ■Court finds that none in fact existed.
Arrowsmith v. Commissioner, 1952, 344 U.S. 6, 73 S.Ct. 71, 97 L.Ed. 6 and Boehm v. Commissioner, 2 Cir., 1944, 146 F.2d 553 relied on in part by plaintiffs are totally inapposite. Golconda Corporation v. Commissioner, 29 T.C. 506, (December 1957) is within the. Hopkinson rule and is no authority for plaintiffs’ argument, nor is Franklin A. Reece, 1955, 24 T.C: 187 applicable, dealing as it does with'only the tax status of a donor.
. The foregoing shall constitute Findings of Fact and Conclusions of Law in accordance with Fed.R.Civ.P. 52(a), 28 U.S.C.A.
Accordingly judgment for the defendant dismissing the complaint is ordered.
. Edward M. Bratter, originally a plaintiff herein, died on November 26, 1957. On January 14, 1958 the Executors of his estate, William B. Bratter, Marvin J. Bloch and Marjorie L. Bratter were substituted in this action as parties plaintiff in place of Edward M. Bratter.
. 1939 Int.Rev.Code § 117(a) (1), 26 U.S.C.A. § 117(a) (1).
. 1939 Int.Rev.Code § 117(a) (4).
. The Court stated in part at page 411: “We think it abundantly clear 'that Congress intended the taxpayer of ■§ 117 to be the person who actually or constructively received the proceeds of the sale, either by virtue of the contract of sale or of an assignment of it whenever that person, though not the actual seller, is one who would have taken the adjusted basis of the seller under § 113(a) (3), and consequently the holding period of § 117 (c) (2), had the property been received and sold by such person to realize capital gain. * * * A seller of capital assets on the installment plan who contemplates the making of a gift of the proceeds might well be deterred from making the sale with its consequent realization of capital gains to be taxed if his donee were taxed on such gains as on ordinary income. Ear from being a strain upon the statutory language, it is in line with its-apparent purpose to tax a donee of the