127 F.2d 979 | 10th Cir. | 1942
This is a petition to review a decision of the Board of Tax Appeals. ■
The Golden Rule Oil Company,
Stewart pasted all 13 certificates to the corresponding stubs in the stock certificate book and issued to Rule a new certificate for 1,274 shares. Stewart testified that in so doing, he intended to cancel the shares formerly represented by certificates 9, 32, 34, and 35 and six other shares and to incorporate the balance of Rule’s 1,274 shares into a new certificate. On the stubs of certificates 9, 32, 34, and 35, Stewart placed a check mark as a symbol to indicate that those certificates had been canceled.
Thereafter, a Mr. Gardner, who had been recommended to Rule, was employed 'by Rule to prepare his 1937 income tax return. Gardner was not the accountant or attorney with whom Rule and Stewart had consulted prior to and during the stock liquidation transaction. Gardner made out a tax return that is both incorrect and unintelligible. It does not truly reflect a cancellation of the specific certificates 9, 32, 34, and 35, nor a cancellation under the first-in, first-out rule. Gardner told Rule that the return showed no tax liability.
On July 7, 1939, the Commissioner sent Rule a deficiency notice proposing a deficiency of $5,519.24 in Rule’s 1937 tax, treating the 546 shares surrendered by Rule as unidentifiable and applying the first-in, first-out rule. Rule filed a petition to review the decision of the Commissioner with the Board of Tax Appeals. The Board sustained the deficiency proposed by the Commissioner.
The Board found that certificates 9, 32, 34, and 35 represented the highest cost stock held by Rule; that at the time Rule surrendered his certificates to Stewart for cancellation, Rule stated to Stewart that he desired to cancel the certificates representing the highest cost stock to him; and that Stewart knew the certificates which represented the highest cost stock to Rule. Because Stewart did not specifically indicate on the corporate records that certificates 9, 32, 34, and 35 were canceled and did not recite that the new certificate was issued to take the place of certificates other than 9, 32, 34, and 35, less six shares, the Board concluded that no identifiable certificates were canceled.
Prior to the surrender of the certificates and disbursement of the money, Stewart knew that certificates 9, 32, 34, and 35 represented the highest cost stock to Rule, and that Rule desired to cancel such certificates. When Rule delivered his certificates to Stewart, Rule stated that he desired to surrender for cancellation the certificates representing the highest cost stock to him. Stewart then knew that certificates 9, 32, 34, and 35 represented the highest cost stock to Rule and understood that Rule desired to surrender those certificates for cancellation. The minds of Stewart, acting as an officer of the corporation, and Rule clearly met upon an understanding that certificates 9, 32, 34, and 35 were surrendered for cancellation. Rule had received a distribution of the proceeds of the sale for such certificates. The transaction was consummated when the certificates were delivered by Rule to Stewart with the understanding that certificates 9, 32, 34, and 35 were to be canceled.
Registration of a transfer of shares on the books of the corporation is not necessary to the validity of the transfer. Even where the charter or by-laws of a corporation, or the general law under which it is organized, provide that stock shall be transferable only on the books of the corporation, it is well settled that as between the parties, an unregistered transfer is valid.
Moreover, the corporate records tend to confirm the transaction. Stewart indicated the surrender and cancellation of certificates 9, 32, 34, and 35 by check marks. This was his method of reflecting the transaction on the corporation records. That symbol to him meant surrender and cancellation.
Identification is not limited to designation by number of certificate. Any designation which specifically identifies the stock to be transferred is sufficient.
We conclude that under the undisputed facts and the findings of the Board, the first-in, first-out rule was not applicable.
Reversed and remanded for further proceedings in accordance with this opinion.
Hereinafter called the corporation.
Date Acquired Certificate Number Number of Shax-es Cost 11-12-1917 17 300 $ 5,000.00 4-22-1921 11 300 10,000.00 4-22-1921 13 300 10,000.00 1- 5-1922 37-50 2,500.00 1- 5-1922 38 100 5,000.00 1- 5-1922 39 100 5,000.00 4- 1-1925 15 60 4,000.00 12-31-1929 9 210 23,555.00 2- 1-1931 30 10 897.33 2- 1-1931 32 150 15,825.00 2-14-1933 34 160 17,946.66 4-14-1933 35 20 2,243.33 2- 2-1935 24 60 3,200.00 1,820 $105,167.32
On this particular issue the Board found:
“Certificates numbered 9, 32, 34 and 35 had the largest cost basis. At the time petitioner surrendered his certificates to the secretary for cancellation he informed him that he ‘wanted to retire such certificates there that cost me the most money.’ The secretary had access to petitioner’s books of account, stock certificates, records, etc. aided him in keeping bis books of account, was familiar with the cost basis of the shares and knew which had the highest cost basis. The aggregate number of shares contained in the four certificates numbered 9, 32, 34 and 35 was 540.”
Fletcher Cyc. Corporations, Perm.Ed., Vol. 12, §§ 5489, 5496; Plumb v. Bank of Enterprise, 48 Kan. 484, 29 P. 699, 700; Culp v. Mulvane, 66 Kan. 143, 71 P. 273, 276; Dewey v. Barnhouse, 83 Kan. 12, 109 P. 1081, 1083, 1084, 29 L. R.A.,N.S., 166; Johnston v. Laflin, 103 U.S. 800, 804, 26 L.Ed. 532.
In Helvering v. Rankin, 295 U.S. 123, 128, 55 S.Ct. 732, 735, 79 L.Ed. 1343, the court said:
“The fallacy of this argument lies in the assumption that shares of stock can he identified only through stock certificates. It is true that certificates provide the ordinary means of identification. But it is not true that they are the only possible means. Compare Richardson v. Shaw, 209 U.S. 365, 28 S.Ct. 512, 52 L.Ed. 835, 14 Ann.Cas. 981; Gorman v. Littlefield, 229 U.S. 19, 33 S.Ct. 690, 57 L.Ed. 1047; Duel v. Hollins, 241 U.S. 523, 36 S.Ct. 615, 60 L.Ed. 1143. * * * The required identification is satisfied, if tbe margin trader has, through his broker, designated the securities to be sold as those purchased on a particular date and at a particular price. It is only when such a designation was not made at the time of the sale, or is not shown, that the ‘First-in, first-out’ rule is to be applied.”
In Miller v. Commissioner, 2 Cir., 80 F.2d 219, 221, the court said:
“ * * * the ‘First in First out’ rule applies only where there is neither identification by a certificate, nor by designation of the taxpayer.”