Source: https://supreme.justia.com/cases/federal/us/295/123/
Timestamp: 2019-04-23 02:41:02+00:00

Document:
marginal account with other lots of the same kind bought at different times and at different prices for the same customer, identification of the lot sold is not dependent on allocation of particular stock certificates, which may be impossible, but is satisfied if the customer, through the broker, designated the shares to be sold as those purchased on a particular date and at a particular price. P. 295 U. S. 128.
"When shares of stock in a corporation are sold from lots purchased at different dates and at different prices, and the identity of the lots cannot be determined, the stock sold shall be charged against the earliest purchases of such stock."
P. 295 U. S. 129.
3. So construed, the regulation affects, at most, the burden of proof, leaving the trader free to establish the identity of the shares by any relevant evidence; it does not create a conclusive presumption arbitrarily depriving him of any of the attributes of ownership, such as the right to decide which shares he will sell. P. 295 U. S. 129.
4. Identification of shares sold with shares purchased, precluding application of the "first-in, first-out " rule, is not made out by proof of a mere intention of the trader not communicated to the broker. P. 295 U. S. 130.
5. The Circuit Court of Appeals is without power, on review of proceedings of the Board of Tax Appeals, to make any findings of fact; the function of the court is to decide whether the correct rule of law was applied to the facts found, and whether there was substantial evidence before the Board to support the findings made. P. 295 U. S. 131.
6. If the Board has failed to make an essential finding and the record on review is insufficient to provide the basis for a final determination, the proper procedure is to remand the case for further proceedings before the Board. And the same procedure is appropriate even when the findings omitted by the Board might be supplied from examination of the record. P. 295 U. S. 131.
7. The Circuit Court of Appeals is not justified in reversing a decision of the Board of Tax Appeals, though it be based on an erroneous rule of law, if the findings of fact, governed by the correct rule of law, are sufficient to sustain the decision and have substantial support in the evidence. P. 295 U. S. 132.
8. Cause remanded to the Circuit Court of Appeals for further consideration on the question whether a finding of the Board of Tax Appeals was without substantial support in the evidence. P. 295 U. S. 133.
Certiorari, 294 U.S. 700, to review a judgment reversing a decision of the Board of Tax Appeals, 261 B.T.A. 1204, which upheld a determination of deficiency in income tax.
"When shares of stock in a corporation are sold from lots purchased at different dates and at different prices and the identity of the lots cannot be determined, the stock sold shall be charged against the earliest purchases of such stock. The excess of the amount realized on the sale over cost or other basis of the stock will constitute gain."
In 1926, Turner received in distribution of his father's estate $20,000 in bonds. Wishing to change his inheritance into stock, he opened a marginal account with a stock broker, sold the bonds, and, with the proceeds as margin, purchased, from time to time during that year, an aggregate of 1,200 shares of United Gas Improvement Company stock at a cost of $117,202.50. On this stock, the broker received for him, later in 1926, 300 shares as a dividend. There were no further operations in 1926 or in 1927. His marginal account became active in 1928.
At the beginning of the year, he was long 1,500 shares of this stock; in May, he sold 300 shares for $44,619 net; in June, he bought 1,000 shares for $143,225; in October, he sold 500 shares for $73,865, and in November 500 shares for $74,115. Thus, at the close of the year, he was long 1,200 shares.
In none of these transactions did the broker deliver to Turner, or Turner to the broker, any stock certificate. No specific certificate of stock was ever bought or sold by the broker for Turner, and none was earmarked or allocated for him in any manner. The purchases and sales affecting his account were made through the medium of street certificates handled by the broker, and the transactions were evidenced solely by debits and credits in his account on the broker's books. Turner first learned these facts after the deficiency assessment. He had always Intended to retain ownership on margin of 1,200 shares of the stock, since he had faith in the company and desired to hold them in lieu of the bonds which he had received from the estate of his father. To his business associates, who acted for him in giving orders to the broker, he had made it plain that the 1,200 shares were in the nature of a permanent commitment on his part. An employee of the broker understood that the decedent desired to retain 1,200 shares of the stock to take the place of the bonds which he had received from his father.
he ordered the broker to make two sales in lots of 500 shares each, they were, conformably with the original instructions, the 1,000 shares last purchased. The petitioner's instructions excluding from sale the shares first purchased were in effect an identification of the shares later sold as those last purchased."
"While the petitioner, in identifying his shares, might have been more specific in his instructions to his broker, those he gave stand uncontradicted; indeed, they have not been questioned. We think they were enough to take the case out of the rule, and that, in consequence, the deficiency tax in issue is invalid to the extent that it is based on gains made in sales of U.G.I. shares reckoned on the purchase price of the original 1,200 shares."
sell." Indeed, it is conceded at least by the taxpayer in this case, that the regulation, as we now interpret it, "provides a useful and reasonable rule for ascertaining what stock was sold in cases where there is no proof, or lack of satisfactory proof, of the fact."
"[w]hat Turner did in this case, acting and speaking through his attorney, was to communicate to his broker his intention to hold for investment the shares of U.G.I. he originally purchased."
"an employee of the broker understood . . . that the decedent desired to retain 1,200 shares to take the place of the bonds which he had received from his father."
"when, two years later, he ordered the broker to make two sales in lots of 500 shares each, they were, conformably with the original instructions, the 1,000 shares last purchased."
But if the employee was told, as the Board found, merely that Turner "desired to retain 1,200 shares [of the U.G.I. stock] to take the place of the bonds which he had received from his father,"
he would naturally believe that, so long as any 1,200 shares of the stock were retained, it was immaterial to which of the lots the sales in 1928 were attributed, and hence there was no identification.
Thus, it was only by departing from the facts as found by the Board of Tax Appeals that the court found justification for reversing the Board's decision.
Fourth. The Court of Appeals is without power, on review of proceedings of the Board of Tax Appeals, to make any findings of fact.
"The Board of Tax Appeals is not a court. It is an executive or administrative board, upon the decision of which the parties are given an opportunity to base a petition for review to the courts after the administrative inquiry of the Board has been had and decided."
"on the theory that the U.G.I. stock, which from time to time he [Turner] purchased on margin and later sold, could be identified only by certificates; that, as no certificates for shares were ever in his name, the shares sold could not be identified as shares purchased in any particular lot or at any particular time or price and, accordingly, charged the shares sold against those earliest purchased within the 'first in, first out' rule."
"The evidence shows conclusively that Turner was sentimental about keeping the original 1,200 shares as an inheritance from his father; that his 'intention' was to retain as an investment the shares originally purchased and sell in speculation the shares more recently acquired."
of Turner's intention was that, throughout his extensive trading, 1,200 shares of United Gas Improvement Company stock were to remain in his account. Since this question was not considered in the court below nor argued here, the case must be remanded to the Court of Appeals for further consideration.
MR. JUSTICE STONE thinks that the judgment of the Court of Appeals should be reversed, and the order of the Board of Tax Appeals affirmed, on the grounds that the petitioner failed to show that the particular shares sold were capable of identification with respect to the date of their purchase, and that they could not be identified merely by designating them to the broker as the shares to be sold.
Art. 4, ¦ 60, Regulations No. 33 (Revised), Revenue Acts of 1916 and 1917; Art. 39, Regulations Nos. 45, 62, 65, and 69, Acts of 1918, 1921, 1924, and 1926, respectively; Art. 58, Regulations Nos. 74 and 77, Acts of 1928 and 1932, respectively; Act. 22(a)-8, Regulations No. 86, Act of 1934.
"When stock is sold from lots purchased at different times and at different prices, and the identity of the lots cannot be determined as to the dates of purchase, the stock sold shall be charged against the earliest purchases of such stock."
"Under the language quoted from Regulations 33 ['as to the dates of purchase,' omitted in subsequent regulations], it might be argued that the identification intended could have been accomplished merely by recording 'the dates of purchase,' rather than by requiring physical identification of the certificates."
Wilkins, Identity of Marginal Transactions, Int.Rev. News v. 4, no. 7, p. 5 (1931).
Compare Howbert v. Penrose, 38 F.2d 577; Skinner v. Eaton, 45 F.2d 568; Snyder v. Commissioner, 54 F.2d 57; Commissioner v. Merchants' & Mfrs.' Fire Ins. Co., 72 F.2d 408.
Compare Tracy v. Commissioner, 53 F.2d 575, 578, 579; Slayton v. Commissioner, 76 F.2d 497; Heywood Boot & Shoe Co. v. Commissioner, 76 F.2d 586.
Compare Bishoff v. Commissioner, 27 F.2d 91, 92; Washburn v. Commissioner, 51 F.2d 949, 951; Tricou v. Helvering, 68 F.2d 280, 285.
Compare Royal Packing Co. v. Commissioner, 22 F.2d 536, 538; Commissioner v. Langwell Real Estate Corp., 47 F.2d 841, 842; Independent I. & C. Storage Co. v. Commissioner, 50 F.2d 31, 33; Kansas City Southern Ry. Co. v. Commissioner, 52 F.2d 372, 379; Houston v. Commissioner, 53 F.2d 445; Underwood v. Commissioner, 56 F.2d 67, 73; Eau Clair Book & Stationary Co. v. Commissioner, 65 F.2d 125, 126.
Compare Kendrick Coal & Dock Co. v. Commissioner, 29 F.2d 559, 564; Francisco Sugar Co. v. Commissioner, 47 F.2d 555, 558; Belridge Oil Co. v. Helvering, 69 F.2d 432.
"whether shares of stock held on margin are capable of identification so that a taxpayer selling part of his holdings may select, as his basis for determining gain or loss, the cost of any particular lot,"
and counsel for the government may have contended in the Court of Appeals, as he did here, that such identification is impossible. It is also true that the Board of Tax Appeals in other cases has approved the rule for which the government is now contending. See Stryker v. Commissioner, 21 B.T.A. 561; Leng v. Commissioner, 22 B.T.A. 149; Seelve v. Commissioner, 29 B.T.A. 695; compare Kelchner v. Commissioner, 31 B.T.A. 262.
Compare Lewis-Hall Iron Works v. Blair, 57 App.D.C. 364, 23 F.2d 972, 974, 975; Hurwitz v. Commissioner, 45 F.2d 780, 781; Dickey v. Burnet, 56 F.2d 917, 918.

References: Art. 4
 Art. 39
 Art. 58
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