1931 BTA LEXIS 1639 | B.T.A. | 1931
Lead Opinion
In order to determine the gain resulting to the petitioner in 1922 from the sale of his 6¾ shares in the 432 Fourth Avenue Corporation in that year we must first ascertain the cost of those shares, which were acquired by petitioner in November, 1913.
The cost of the Fourth Avenue Corporation shares would ordinarily be determined by the market value of the shares of the Realty Holding Company at the time of exchange, but no evidence was presented as to such market value. It is not likely in the circumstances that the stock of this company had any market value, as it was held closely by the Hess brothers, and as the respondent suggests in his brief, the company itself was probably intended simply as a conduit of title which by its corporate form would protect the petitioner and his brother from any liability resulting from the hazards of building, injuries to workmen, etc., which they as individuals, with unlimited liability, might otherwise incur. The very nature of the holding company and the close holding of its • stock precludes the supposition that its stock had a readily realizable market value, ascertainable by market sales or quotations. It becomes necessary to inquire whether the intrinsic value of the assets back of the stock may be easily ascertained. George M. Wright, 19 B. T. A. 541, 548. If so, we may take the 1913 market value of the assets transferred by the holding company to the Fourth Avenue Corporation as the measure of the cost of the stock of the latter company received by the petitioner at that time. Indeed, while these assets were nominally transferred.by the Holding Company to the new corporation, they were in substance transferred by the petitioner and his brother, Edwin H. Hess, since they were the real parties in interest in the Holding Company. The value of the assets, then, less any charges or other indebtedness attaching to them, actually represents the cost of Fourth Avenue Corporation stock received in 1913 in exchange.
The evidence of the value of the land and building at the northwest corner of Fourth Avenue and Twenty-ninth Street, New York City, which constituted those assets, is clear and convincing. We have found it to be $1,100,000. The lot itself was desirable by reason of its location on the northwest corner and its substantial frontage on Fourth Avenue, which, at the time it was acquired by the new corporation, was becoming an important business street. The development of Fourth Avenue began after the building of the subway about 1906 or 1907 and was well advanced by 1912. The petitioner, who had had long experience in New York real estate, testified that it was worth between $1,100,000 and $1,250,000. One wit
Moreover, the taking of a mortgage on the property by the Metropolitan Life Insurance Company in the amount of $725,000 further substantiates our finding, for the practice of that company under the State law is to take mortgages for no more than 50 per cent of value; McKinney’s Consolidated Laws of New York, Ann., Book 27, section 100, Insurance Law, 1892, as amended 1906 and subsequently.
As was said by the Supreme Court, per Brewer, in Montana Ry. Co. v. Warren, 137 U. S. 348: “At best, evidence of value is largely a matter of opinion, especially as to real estate.”
The respondent has introduced no evidence to rebut the expert testimony supporting the petitioner’s contention as to value, and we adopt it therefore as the value of the assets in November, 1913, which underlay the shares of the 432 Fourth Avenue Corporation. Anita M. Baldwin, 10 B. T. A. 1198.
2. With respect to the second issue, we have been unable to find any facts to support the petitioner’s contention that he spent in 1922, for the entertainment of his customers, $4,160 which might be deducted under section 214(a) (1) as ordinary and necessary expenses incurred in carrying on his business. Checks and club and restaurant bills totaling $4,147.97 were put in evidence by the petitioner, but the petitioner’s own testimony on the stand leaves not only the amount but the purposes of these expenses in considerable doubt.
Petitioner was president of M. & L. Hess, Inc., and entertained on behalf of the corporation, but these expenses were never allowed as expenses of the corporation and they were never entered on its books. The petitioner kept no books of account or record himself respecting them, but sought at the hearing to establish the minimum amount of such expenses by trying to identify canceled bank checks, restaurant and club bills, receipts, etc. Petitioner confessed his inability to identify with any certainty checks drawn to cash and used in entertainment for business purposes, and he showed a like uncertainty as to club bills. Obviously on this state of the evidence it is impossible to say how much these expenses amounted to. On the authority of Cohan v. Commissioner, 39 Fed. (2d) 540, 544, we should, however, have to hazard a guess as to the amount allowable if another factor did not here intervene. The petitioner has not proved that these expenses were necessary. The entertainment, as said, was of customers of the corporation and if necessary in the business of the corporation was properly an expense of the corporation. But petitioner’s brother and his other associates in the corporation stoutly refused to allow the corporation to reimburse him for these expenses. Having failed to obtain reimbursement from the corporation, the petitioner now seeks to claim
The facts stipulated on the third issue raised allow it to be disposed of by us under Eule 50, and judgment will accordingly be entered thereunder.
Judgment will be entered under Rule 50.