1933 BTA LEXIS 1076 | B.T.A. | 1933
Lead Opinion
We must first dispose of the motion of counsel for the petitioners to dismiss the petition in Docket No. 36724. It is the contention of the petitioners that since the taxpayer, William N. Eisendrath, was dead at the time the deficiency notice was mailed, the notice was sent to a nonexistent person and that the “ taxpayer ” erroneously named in the deficiency letter did not file the petition with the Board. Petitioners therefore contend that the Board does not have jurisdiction because section 274 (a) of the Revenue Act of 1926 was not complied with. There are set forth- in the margin the applicable provisions of the Revenue Act of 1926.
We also consider that the executors of the deceased taxpayer were authorized under section 274 (a), supra, to file the petition with the Board, since they stand in the place of the deceased taxpayer.
In Butler v. Eaton, 141 U. S. 240, the Supreme Court ref erred to a decision of the Supreme Court of Massachusetts. The Supreme Court of Massachusetts had decided that for the purpose of res judicata the parties were the same in an action by Mary J. Eaton, against the Pacific National Bank and an action between the receiver of the bank and Mary J. Eaton. The Supreme Court stated in regard to this holding:
* * * We are inclined to think, however, that the court below was right-in determining that the two actions were substantially between the same parties, inasmuch as a receiver of a national bank, in all actions and suits growing out of the transactions of the bank, represents it us fully as an executor represents his testator. * * * [Italics supplied.]
In Gertrude H. Miles, Executrix, 12 B.T.A. 519, we stated in part:
* * * There is nothing in the record which indicates that respondent inoeeeded under section 280. We have not been favored by a brief from counsel for petitioner but are under the impression that he relies on Owensboro Ditcher & Grader Co. v. Lucas, 18 Fed. (2d) 798. Without passing on the merits of that decision, it is sufficient to point out that it is apparent that petitioner is not a .íansferee, such as was involved, in that case. She is the personal representative of the deceased, taxpayer and as such she stands in his shoes. She represents him in the settlement of his estate; in the collection of all that is clue it and in the payment of all his obligations. As such, it was her duty not only to return the income of the estate but also all the income of her testator which he had not returned. Section 225 of the Revenue Acts of 1918, 1919, 1921, 1924 and 1926. Cf. Bankers’ Trust Co. v. Bowers, 295 Fed. 89. She has the right to file in behalf of the estate waivers extending the period of limitation. Aldridge v. United States, 64 Ct. Cls. 424. She has the right to recover any overpayments of decedent’s taxes and she is under obligation to pay all Ms taxes which remain unpaid. In fact, she is what the term “ personal representative ” imports — the representative of her deceased husband in all matters that pertain to his liabilities and to his estate. She is his ia-dem persona. Matter of Martin, 144 N. Y. S. 174. Not only is she the representative of decedent, but she is also the representative of those who have claims against his estate, including the Government. 23 C.J. 1170. [Italics supplied.]
See also Charles M. Howell, Administrator, 21 B.T.A. 757.
Since the parties who filed the petition herein on behalf of tbe estate of William N. Eisendratb were the duly appointed executors
The iiroeeecling shall be brought by and in the name of the person against whom the deficiency [or liability, as the case may be], is asserted by the Commissioner, or a fiduciary legally entitled to institute a proceeding on behalf of such person. (Sec. 281, Revenue Act of 1926). * * *
The case of William A. Matern, 21 B.T.A. 384, cited by petitioners, is not in point. There neither of the parties who filed the petition with the Board was the legal representative of the decedent or his estate.
The motion of counsel for petitioners to dismiss the proceeding in Docket No. 36724 for lack of jurisdiction is hereby denied.
The petitioners having waived other issues raised in the pleadings, the only question left for decision is whether gain was derived by the stockholders of the Illinois Co. upon the reorganization of that company whereby they received, for every share of stock of the Illinois Co. which they owned, 50 shares of the stock of the Delaware Co. plus $1,400 in cash.
There are set forth in the margin applicable provisions of the Revenue Act of 1921, as amended by the Act of Congress of March 4, 1923.
The stockholders of the Illinois Co. received, in addition to the stock of the Delaware Co., no “ other property ” upon the reorganization than money. In the instant proceeding under section 202(c) of the Revenue Act of 1921 the gain is to be computed in accordance with subdivisions (a) and (b) of section 202 (that is, by taking into consideration the total amount realized in the disposition of the stock of the Illinois Co. including the readily realizable market value, if
It has been stipulated that the basis for the determination of gain or loss upon the disposition of the stock of the Illinois Co. is the March 1, 1913, value thereof, which value was $1,410.03 per share. The respondent apparently determined that the stock of the Delaware Co. received by the stockholders of the Illinois Co. had a value at least equal to the March 1, 1913, value of the stock of the Illinois Co. since he has held that the full amount of the cash received by each stockholder constituted taxable gain. Petitioners contend that the stock of the Delaware Co. at the time it was received by them had no readily realizable market value and that since the amount of cash received did not exceed the March 1, 1913, value of the stock of the Illinois Co. no taxable gain was derived upon the reorganization.
At the outset it is interesting to examine the intent of the Congress in enacting the provisions of the Kevenue Act of 1921 relating to the recognition of gain or loss upon the exchange of property. In the report of the Ways and Means Committee on the Eevenue Bill of 1921 there is contained the following:
EXCHANGES OF PROPERTY .FOR OTHER PROPERTY
The bill (subdivision (d), p. 6) provides new and explicit rules for determining gain or loss where property is exchanged for other property. Under existing law “ when property is exchanged for other property, the property received in exchange shall for the purpose of determining gain or loss be treated as the equivalent of cash to the amount of its fair market value, if any * * Probably no part of the present income-tax law has been productive of so much uncertainty and litigation or has more seriously interfered with those business readjustments which are peculiarly necessary under existing conditions. Under existing law the presumption is in favor of taxation. The ‘proposed bill modifies that presumption by providing that on an exchange of property for property no gain or loss shall be recognized unless the property received in exchange has a*758 definite and readily realisable market value; and specifies in addition certain classes of exchanges on which no gain or loss is recognized even if the property received in exchange has a readily realizable market value. [Italics supplied.]
The Finance Committee Report upon the same bill contains similar language.
We shall first determine what is meant by the term “ readily realizable market value.”
The word “ readily ” is defined in Webster’s New International Dictionary, 1929, as “ In a ready, or prompt manner; quickly, easily.”
Article 1564 of Regulations 62, relating to the Revenue Act of 1921, provides in part as follows:
* * * Property has a readily realizable market value if it can be readily converted into an amount of cash or its equivalent substantially equal to the fair value of the property. In other words, the property received in exchange must be readily marketable at substantially its fair value in order that a gain or loss be recognized. * * *
In Anton M. Meyer, 3 B.T.A. 1329, we quoted with approval the portion of the regulations above set forth and held that certain personal notes given by a member of a partnership did not have a readily realizable market value.
That provision of the regulations was also approved in Biscayne Trust Co., Executor, 18 B.T.A. 1015, and in Clarke v. Welch, 46 Fed. (2d) 563. In the latter case certain stock was held not to have a readily realizable market value. The court there stated in part:
* * * There is no question as to the intendment of the statute, or regulations pertaining thereto, which, I conceive, contemplates that property, real, personal, or mixed, shall not be subject to. income taxes unless on transfer the property received in exchange has a readily realisable market value; and it is invested with such value if it can be readily converted in an amount of cash or its equivalent substantially equal to its fair value (see article 156J¡., Reg. 62); and it is stated that whether property has a readily realizable market value depends upon the facts and circumstances in each particular case.
Tested by this rule, I am constrained to hold that there was no evidence that the oil stock could have been readily sold in the market at approximately its par value. No sales were made of the 250 shares allotted to husband and wife, respectively, and consequently there were no gains or profits. Indeed, at such time the enterprise was involved in uncertainty as to the outcome. It cannot in fairness be regarded as income, in my opinion, until a market value is established or unless it appears that a certain amount of gain is realisable therefrom. * * *
* * * The evidence before me, as I see it, outweighs the prima facie showing of the United States, and the conclusion is not, I think, unwarranted that it preponderatingly appears that the shares of stock received by Mrs. Clarke and her husband did not have a realizable market value, and that no tax is assessable thereon until there is a transfer, exchange, or sale upon a basis of fair market value. [Italics supplied.]
* * * The term “ readily realizable market value ” has been used in the revenue acts where the recipient of property in an exchange is to be taxed on the gain resulting from the exchange. Before such a transaction is considered to give rise to taxable gain under the statute, the property received in the exchange must have a readily realizable market value, i. e., he practically the equivalent of cash,. * * * [Italics supplied.]
To the same effect are Smith v. Dean, 52 Fed. (2d) 291, and A. O'Day, 20 B.T.A. 455.
In the instant proceeding the evidence shows that at the time the stock of the Delaware Co. was issued to the stockholders of the Illinois Co., and theretofore, the independent leather companies, such as the Delaware Co., had been subjected to severe competition by the shoe manufacturers and by the packers, who had also gone into the manufacture of leather; that during the war the leather companies had overexpanded and as a consequence in 1923 there was an oversupply of leather-tanning facilities; that many of the larger leather companies had in 1923 and years just previous thereto suffered tremendous losses; that in September 1923, the stocks of leather companies were in disfavor; that there were no sales of stock of the Illinois Co. from March 1, 1913, until the date of reorganization; that none of such stock has ever been listed or dealt in on any stock exchange and has never been dealt in or offered for sale by any dealer in stock or securities or by any of the petitioners; that there have never been any offers to buy such stock outside of the members of the Eisendrath family; and that in the year 1923 the combined income tax return of the Illinois Co. and Delaware Co. showed a net loss.
Three well qualified witnesses testified as to the marketability of the stock in question.
Edwin W. Eisendrath, one of the petitioners herein, who is now president of the Delaware Co. and who has been in the leather business since 1913, testified that the stock of the Delaware Co. had no readily realizable market value in 1923.
David Stern, who is vice president of A. Gr. Becker & Co., a general investment banking house loaning money to corporations and selling stocks and bonds as underwriters, and which did business with quite a few leather companies, including the Illinois Co. and the Delaware Co., testified that in 1923 the securities of leather companies were in great disfavor and that the stock of the Delaware Co. in September 1923, was absolutely not marketable or salable as a whole.
Arthur W. Newton, vice president and loan officer of the First National Bank of Chicago, the largest national bank in Chicago and the second largest bank in size in Chicago, who has been connected
The opinions of these witnesses are well corroborated by the other evidence adduced, and their testimony was not contradicted. The opinion testimony of these witnesses is entitled to consideration. In Clarke v. Welch, supra, the court stated:
That the opinion testimony of plaintiff and expert opinions of other witnesses is entitled to consideration is amply supported by the decisions of this state.
In Anton M. Meyer, supra, we stated in part:
The proof satisfies us that the notes had no readily realizable market value at the time of their receipt. Two bank officials, familiar with the business and commercial standing of the partnership of Ginocchio, Oosta & Co., and the individual credit ratings of its members, stated in no uncertain terms that there was no market for the notes. * * *
In Biscayne Trust Co., Executor, supra, we stated:
* * * The uncontradicted testimony of a real estate dealer, well qualified to testify as to real estate values in and around "Miami, establishes that lots in Tatum’s Ocean Bay Park liad no readily realizable market value. * *
See Montana Ry. Co. v. Warren, 137 U.S. 348, for general discussion as to the value of opinion testimony. The Supreme Court there stated in part:
* * * In respect to such value, the opinions of witnesses familiar with the territory and its surroundings are competent. * * * Here as elsewhere, we are driven to ask the opinions of those having superior knowledge in respect thereto. * * *
Considering the testimony of these witnesses together with the other facts adduced, it is our opinion, and we have found as a fact, that at the time the stockholders of the Illinois Co. received the stock in the Delaware Co. such stock had no readily realizable market value within the meaning of the statute.
* * * We are satisfied that under the conditions that prevailed at the time the petitioner received his stock it could not have been marketed for more than a nominal amount and that because of such, unusual conditions its fair market value can not be said to be measurable by either its intrinsic value under normal conditions or by earnings of past years.
In Andrew B. C. Dohrmarm, 19 B.T.A. 507, we held that the' fact that assets back of stock had substantial intrinsic value did not necessarily prove that the stock had a “ fair market value.” The Board applied the rule that “ if, in fact, the evidence in each Case proves that the property in question has ‘ no fair market value ’ on the date involved, neither the taxing authorities nor the courts home authority to construct such a value by means of any set rule or formula.” (Italics-supplied.) In Gladys Bilicke, 20 B.T.A. 784 (petition for review dismissed on motion of Commissioner, 51 Fed. (2d) 1075), we stated:
We think our views expressed in that case [A. B. C. Dohrmann, supra] are pertinent to the question whether or not property has a readily realizable market value under the provisions of section 202(c) of the Act of 1921. [Italics supplied.] '
None of the cases cited by respondent are governing. None of them involves the determination of “readily realizable market value ” except Fesler v. Commissioner, 38 Fed. (2d) 155; certiorari
Here the. petitioners, upon whom rested the burden of proof in the first instance, adduced evidence, which, in our opinion, overcame the presumption in favor of the correctness of the respondent’s determination that the stock in question had a readily realizable market value at the time in question. Thereupon the burden shifted to the respondent to go forward with the evidence.- This the respondent has failed to do. See. Milton Smith Jr., Executor, 28 B.T.A. 422.
Since we have held that the stock of the Delaware Co. had no readily realizable market value at the time in question and since the amount of cash, $1,400, which thie stockholders of the Illinois Co. received in exchange for each share of their stock in the Illinois Co. does not exceed the basis, $1,410.03, of each share of such Illinois Co. stock, no taxable gain was derived by such stockholders upon the transaction in question.
Reviewed by the' Board.
Decision will be entered under Rule SO.
Sec. 200. When used in this title —
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(b)The term “ fiduciary ” means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.
Sec. 274. (a) If in the case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail. Within 60 days after such notice is mailed (not counting Sunday as the sixtieth day), the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. * * *
Sec. 281. (a) upon notice to the Commissioner that any person is acting in a fiduciary capacity such fiduciary shall assume the powers, rights, duties, and privileges of the taxpayer in respect of a tax imposed by this title or by prior income, excess-profits, or war profits tax Act (except as otherwise specifically provided and except that the tax shall be collected from the estate of the taxpayer), until notice is given that the fiduciary capacity has terminated.
(b) upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in section 280, the fiduciary shall assume, on behalf of such person, the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated.
(c) Notice under subdivision (a) or (b) shall be given in accordance with regulations prescribed by the Commissioner with the appi-oval of the Secretary.
(d) In the absence of any notice to the Commissioner under subdivision (a) or (b), notice under this title of a deficiency or other liability, if mailed to the taxpayer or other person subject to liability at his last known address, shall be sufficient for the purposes of this title even if such taxpayer or other person is deceased, or is under a legal disability, or, in the case of a corporation, has terminated its existence.
Sec. 202. (a) That the basis for ascertaining the gain derived or loss sustained from a sale or other disposition of property, real, personal, or mixed, acquired after February 28, 1913, Shall be the cost of such property; except that—
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(b) The basis for ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, acquired before March 1, 1913, shall be the sanre as that provided by subdivision (a) ; but—
(1) If its fair market price or value as of March 1, 1913, is in excess of such basis, the gain to he includes, in the gross income shall he the excess of the amount reaUtsed therefor over such fair market value or price; [Italics supplied.]
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(c) For the purposes of this title, on an exchange of property, real, personal or mixed, for any other such property, no gain or loss shall be recognized unless the property received in exchange has a readily realizable market value; but even if the property received in exchange has a readily realizable market value, no gain or loss shall be recognized—
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(2) When in the reorganization of one or more corporations a person receives in place of any stock or securities owned by him, stock or securities in a corporation a party to
(e) Where property is exchanged for other property which has no readily realizable market value, together with money or other property which has a readily realizable market value, then the money or the fair market value of the property having such readily realizable market value received in exchange shall be applied against and reduce the basis, provided in this section, of the property exchanged, and if in excess of such basis shall be taxable to the extent of the excess; but when property is exchanged for property specified in paragraphs (1), (2) and (3) of subdivision (c) as received in exchange, together with money or other property of a readily realizable market value other than that specified in such paragraphs, the amount of the gain resulting from such exchange shall be computed in accordance with subdivisions (a) and (b) of this section, but in no such case shall the taxable gain exceed the amount of the money and the fair market value of such other property received in exchange.
