Court Opinion

ID: 4631735
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:10:15.989073+00
Date Added: 2024-06-11T07:57:46.635766
License: Public Domain

WALTER A. EDWARDS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Edwards v. CommissionerDocket No. 10021.United States Board of Tax Appeals10 B.T.A. 39; 1928 BTA LEXIS 4201; January 20, 1928, promulgated 1928 BTA LEXIS 4201">*4201  1.  The Oklahoma Producing & Refining Co., of which the petitioner was a stockholder, adopted on January 26, 1920, a resolution to liquidate and dissolve and on January 27, 1920, notified petitioner that on and after February 14, 1920, he could surrender his stock and would receive for each share $2.30 in cash and 1 1/4 shares of stock of the Oklahoma Producing & Refining Corporation of America.  Held, first, that petitioner received the cash and stock of the Oklahoma Producing & Refining Corporation of America on February 14, 1920, and, second, that on February 14, 1920, the stock so received had a value of $5 per share.  2.  The amount of gain resulting from the transaction determined.  Marion P. Wormhoudt, Esq., and Harold C. Anderson, C.P.A., for the petitioner.  L. C. Mitchell, Esq., for the respondent.  LOVE 10 B.T.A. 39">*39  This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1920, in the amount of $5,665.10.  The entire deficiency results from the Commissioner's action in increasing petitioner's net income for 1920 by the amount of $33,356.02, which amount, the Commissioner determined, represented1928 BTA LEXIS 4201">*4202  the gain realized by the petitioner upon the liquidation and distribution of the assets of the Oklahoma Producing & Refining Co.  The petitioner alleges error on the part of the Commissioner in respect of such determination.  The facts were stipulated.  FINDINGS OF FACT.  On January 26, 1920, the petitioner, Walter A. Edwards, was the owner of 11,640 shares of stock of the Oklahoma Producing & Refining Co., which stock the petitioner acquired subsequent to March 1, 1913, at a cost of $75,440.98.  10 B.T.A. 39">*40  About January 5, 1920, the stockholders of the Oklahoma Producing & Refining Co. were notified that a meeting would be held on January 26, 1920, at 11.30 a.m., to take action upon a resolution of the board of directors relative to the dissolution of the Oklahoma Producing & Refining Co.  On January 26, 1920, the stockholders of the Oklahoma Producing & Refinding Co. met in special meeting and passed the following resolution: Resolved, that the action of the Board of Directors favoring the dissolution of this corporation be and the same is hereby approved, and that we, being upwards of two-thirds interest of all the stockholders having voting power, consent that such1928 BTA LEXIS 4201">*4203  dissolution shall take place, and signify our consent in writing; and further Resolved, that the transfer books of the Company remain open to the close of business February 14, 1920, and further Resolved, that the officers of the Company be and they hereby are authorized, empowered and directed to take any and all action and/or sign any and all papers which they may deem proper, requisite and/or necessary to effect the dissolution of the Company.  On January 26, 1920, a certificate of dissolution was executed and on January 26, 1920, the certificate was duly filed with the proper state officers of Delaware, where the articles of incorporation of the Oklahoma Producing & Refinding Co. were tkane out, and all acts necessary to effect dissolution were completed on that day.  On January 27, 1920, a circular letter was sent to the stockholders of the company in dissolution signed by the secretary of that company.  A copy of this letter reads in part as follows: To All Stockholders: Pursuant to action at the stockholders' meeting yesterday and to other procedure duly taken, your company has been dissolved.  On and after February 14, 1920, the holders of certificates for stock1928 BTA LEXIS 4201">*4204  of Oklahoma Producing and Refining Company (your company) upon surrender of same at the office of Guaranty Trust Company of New York, No. 140 Broadway, New York City (Reorganization department) will be entitled to receive for each share of such stock $2.30 in cash 1 1/4 shares of common stock of OKLAHOMA PRODUCING AND REFINING CORPORATION OF AMERICA.  * * * The stock transfer books of Oklahoma Producing & Refining Company (Your company) will be closed at the close of business February 16, 1920.  * * * The stock transfer books of Oklahoma Producing and Refining Corporation of America will be open on and after February 16, 1920.  Subsequent to February 14, 1920, the petitioner, Walter A. Edwards, turned in his stock of the Oklahoma Producing & Refining Co. and received in exchange for each share of said stock one and one-fourth shares of stock in the Oklahoma Producing & Refining 10 B.T.A. 39">*41  Corporation of America and $2.30 in cash.  The petitioner kept his books and made his Federal income-tax return for the year 1920 on a cash basis.  The first day on which the officers of the Oklahoma Producing & Refining Co. permitted the stockholders to exchange their stock for the1928 BTA LEXIS 4201">*4205  stock of the Oklahoma Producing & Refining Corporation of America, plus $2.30 cash per share, was on February 14,1920.  During the week beginning January 26, 1920, the stock of the new corporation (Oklahoma Producing & Refining Corporation of America) was traded in on the New York curb market.  On January 27, 1920, the sales of said stock on the New York curb market showed a value of $5.50 per share.  There were no sales of stock of the Oklahoma Producing & Refining Corporation of America on the New York curb market or New York Stock Exchange on February 14, 1920.  Sales of shares of stock of the Oklahoma Producing & Refining Co. (that is, the old company) on the New York Stock Exchange on February 14, 1920, showed the value of that stock to be $8.12 per share.  The first day the stock of the Oklahoma Producing & Refining Corporation of America was traded in on the New York Stock Exchange was February 19, 1920, and its market value on that date was $5 per share.  Upon audit of petitioner's return for 1920, the Commissioner determined that on January 26, 1920, the Oklahoma Producing & Refining Co. liquidated and distributed its assets and that the petitioner received for each1928 BTA LEXIS 4201">*4206  share of stock thereof, $2.30 in cash and one and one-fourth shares of stock of the Oklahoma Producing & Refining Corporation, which stock had a market value of $5.50 per share, the total amount received for each share of stock of the liquidated company, therefore, being $9.175.  And, he further determined that the cost of the 11,640 shares of stock of the Oklahoma Producing & Refining Co. was $73,440.98 and that the amount received therefor, on the basis of $9.175 per share, upon liquidation was $106,797, which determination resulted in a gain of $33,356.02, and this amount was added to petitioner's net income for 1920.  OPINION.  LOVE: The petitioner contends that the respondent erred in determining that he realized any gain on January 26, 1920, by reason of the dissolution resolution of that date and he further contends that the gain resulting from the liquidation and dissolution of the Oklahoma Producing & Refining Co. (hereinafter called the old company) must be determined upon the basis of the value of the stock of the Oklahoma Producing & Refining Corporation of America (hereinafter called the new company) on February 14, 1920.  10 B.T.A. 39">*42  It will be observed that petitioner1928 BTA LEXIS 4201">*4207  was advised on January 27, 1920, that "on and after February 14, 1920, the holders of certificates for stock of Oklahoma Producing & Refining Company upon surrender of same * * * will be entitled to receive for each share of such stock $2.30 in cash - 1 1/4 shares of common stock of Oklahoma Producing & Refining Corporation of America." It will be further observed that "the first day on which the officers of the Oklahoma Producing & Refining Co. permitted the stockholders to exchange their stock for the stock of the Oklahoma Producing & Refining Corporation of America, plus $2.30 cash per share, was on February 14, 1920." In view of these facts, we think that the petitioner did not, during the period from January 26, 1920, to February 14, 1920, have any right to demand the cash and stock of the new company in return for the stock of the old company.  It seems clear that the petitioner had no right of action to force delivery before the appointed day therefor, namely, February 14, 1920.  Consequently, we conclude that prior to February 14, 1920, the petitioner did not realize any gain.  However, on February 14, 1920, petitioner had an unqualified right to demand delivery of $2.301928 BTA LEXIS 4201">*4208  in cash and 1 1/4 shares of stock of the new company in exchange for each share of stock of the old company.  We must hold, therefore, that on or about February 14, 1920, petitioner received $2.30 cash and 1 1/4 shares of stock of the new company for each share of stock of the old company.  The only question that remains, therefore, relates to the value of the stock of the new company on February 14, 1920.  The only evidence before us with respect to that question is to the effect that on January 27, 1920, on the New York curb market it sold for $5.50 per share and on February 19, 1920, it sold on the New York Stock Exchange for $5 per share.  There were no sales on February 14, 1920, and February 19, 1920, was the first day the stock was again traded in.  We think, therefore, that we are justified in holding that the value of the stock of the new company was on February 14, 1920, $5 per share.  As stipulated, the 11,640 shares of stock acquired subsequent to March 1, 1913, cost the petitioner $75,440.98.  Upon dissolution of the old company he received therefor $26,772 in cash and $14,550 shares of stock of the new company of the value of $5 per share, the total value of which1928 BTA LEXIS 4201">*4209  was $72,750.  The total amount of cash and stock received was, therefore, $99,522 and the gain resulting from the transaction was $24,081.02.  The deficiency should be recomputed in accordance with this opinion.  Judgment will be entered on 15 days' notice, under Rule 50.