1939 BTA LEXIS 1020 | B.T.A. | 1939
Lead Opinion
The first question is whether the Commissioner erred in determining the deficiency. He stated in the notice of deficiency that the petitioner had sold the shares for $81,055, and he then made what
The Commissioner by affirmative pleading has raised another issue. He now contends that the petitioner did not make a bona fide sale of any of the shares to the three family trusts and to the daughter, but instead sold the shares on the market for $206,816 and realized a profit of $125,761. The burden of proof on this new issue rested squarely upon the Commissioner. The contention is contrary in many important particulars to the determination which he made to justify the deficiency. He now argues that the petitioner really sold the shares on the market himself at the current market price and gave his profit to his daughter and. the three family trusts. Not only do the facts fail to support this contention, but they show affirmatively that the actual transactions were quite different.
There is no reason whatsoever to disbelieve any of the testimony of the petitioner and Choate. The petitioner’s testimony shows that he deliberately refrained from selling this stock on the market, realizing a large profit himself and subjecting himself to income tax on that profit. Cf. Gregory v. Helvering, 293 U. S. 465, as to propriety of avoiding taxes. It is likewise clear that he sold the stock to the three family trusts and his daughter at cost, having in mind that they in turn could sell the stock at a profit. The sales were complete and proper in all essentials. This was his way of increasing the corpus of the trusts and of increasing the property of his minor daughter. The income tax consequences of those acts depend upon what was actually done, not upon what might have been done. It was done in such a way that the petitioner realized no profit whatsoever.
The respondent’s argument in regard to the purchase of one-fourth of the shares by the petitioner’s daughter Edith is that she was a minor; her account with Clark, Dodge & Co. was opened, managed, and controlled by the petitioner; therefore, either it was his account or he was acting as guardian for his minor daughter; if it was really his own account, obviously he could not sell to himself, and in any event, the profit would be his; whereas, if he was guardian for his daughter, he would have no right to buy this Celanese stock for her, because it was not the kind of stock which a fiduciary would be justified in buying under the laws of New York. The petitioner opened the account for and on behalf of his daughter Edith. None of his actions is inconsistent with the proposition that beneficial ownership of the account was in the daughter. On the contrary, his actions have always been consistent with that proposition. We are unable to conclude from the evidence that the account belonged to the petitioner. Cf. Emil Frank, 27 B. T. A. 1158; Preston R. Bassett, 33 B. T. A. 182; Marry T. Rollins, 34 B. T. A. 319. The evidence does not show that the petitioner was ever appointed guardian for his daughter. The account was originally opened with a gift of common stock. We can not believe that any court of competent jurisdiction would nullify the action of the petitioner in selling this valuable stock to his daughter at less than its current market price. The final sale on the market was made on her behalf and for her benefit, and the profit which resulted was hers from the very moment that it was realized. It never belonged to the petitioner and was never received by him.
Decision will be entered for the petitioner.