Court Opinion

ID: 3494089
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:02:09.223728+00
Date Added: 2024-06-11T14:15:04.016632
License: Public Domain

In concurring in the foregoing opinion, the discussion is limited solely to the questions involved in the statement thereof in appellant's brief. The controlling question thus presented is whether there was not really an exchange of properties, and whether appellee suffered a loss thereupon, notwithstanding the fact that it first reported a profit. The agreements to sell the four parcels and to purchase the hotel are contained in one instrument, which sets forth "the values at which the above properties are being taken in at are," etc. These words indicate an exchange rather than a sale for cash or credit. The four parcels consisted of equities which, after their transfer and the payment of $50,000, were paid for by credits of payments *Page 361 
on a land contract for the purchase of the hotel property contemporaneously entered into with the Lees and which resulted in the acquisition of an equity in the hotel property by the Detroit Investment Company. The latter reported a profit on the transfer of the four parcels in its income tax returns. It carried the Lee Plaza on its books at $1,750,000. In the last analysis, however, it received in exchange for its four equities, the equity in the Lee Plaza Hotel. While we are impressed with the fact that the Detroit Investment Company by its written contract placed a value of $1,750,000 on the hotel, and we regard this as very strong evidence, nevertheless we cannot overlook the fact that three witnesses, including a member of the board of assessors of the city of Detroit, testified that the value of the hotel in 1928 was considerably less than the sum the Detroit Investment Company still owed for it after the application of the amounts at which the equities of the parcels were taken, plus $50,000 in cash that was paid. The trial judge was impressed with this testimony. Appellant relied upon the written terms of the contract and offered no other evidence. The testimony does bear out the fact that the amount realized from the sale or other disposition of the four parcels, upon consideration of the fair market value of the property received (the equity in the Lee Plaza Hotel), was a minus quantity. There was a loss in the transfer of the equities of the four parcels of property, not a gain.
Our attention has been called to numerous cases; the only one that closely resembles the instant one is Roberts v.Commissioner of Internal Revenue, 7 B. T. A. 1162, wherein the value of the property received in exchange was also in dispute. The board held that the value fixed by the deed did not give an accurate index to the actual value. In Jackson *Page 362 Sanatorium  Hospital Co. v. Commissioner of Internal Revenue,9 B. T. A. 734, the board held that the fair market value of notes and liberty bonds received in the transaction, rather than the statement of the amounts in the contract under which the land was disposed of, was the controlling factor. Again inKing v. Commissioner of Internal Revenue, 10 B. T. A. 308, the board disregarded the values set forth in the contract, but took into consideration the actual value of a secondhand car received as part payment for the tract of land. The case ofIves Ice Cream Co. v. Commissioner of Internal Revenue,15 B. T. A. 376, is not applicable, for in that case a credit memorandum was given to a dealer to apply on future purchases of new trucks. In the case of Helvering v. Midland Mutual LifeIns. Co., 300 U.S. 216 (57 Sup. Ct. 423, 108 A.L.R. 436), the court held that when a mortgagee at a foreclosure sale bids in property for the amount of the mortgage plus interest, it must report the interest as income notwithstanding the claim that the property thus purchased was worth less than the amount of his mortgage plus interest. However, that case is quite distinguishable from the present on its facts, the court stating:
"The 'reality' of the deal here involved would seem to be that respondent valued the protection of the higher redemption price as worth the discharge of the interest debt for which it might have obtained a judgment."
To hold differently would be a serious burden to the income tax law, which, as the court says, did not profess "to embody perfect economic theory." It is true that in Hawn v. Malone,188 Iowa, 439 (176 N.W. 393), the court stated:
"The test for determining whether there has been a sale or exchange of property is whether there was *Page 363 
a fixed price at which the exchange was to be made. If there was a fixed price, the transaction is a sale; if not, an exchange."
The court also stated that parol evidence was admissible to show the actual consideration given and that such evidence shows that a sale was intended. The case did not involve a tax problem, but was concerned with the question of whether or not a mortgage had been impliedly assumed in a real estate transaction. If the quotation from Hawn v. Malone, supra, be accepted as a rule in every case where a set value was placed upon properties exchanged for one another, it would nullify the provisions of the income tax law, which states that the amount realized from the sale or other disposition of the property shall be the sum of the cash received plus the market value of the property other than the money received (Income Tax Law 1928, § 111, subd. c [45 Stat. at L., chap. 852, § 111, subd. c]). Appellant contends that the loss on the four parcels could be claimed only when and if a loss were sustained on the hotel property and that appellee is claiming an anticipated loss. Were this true no loss could be claimed on an exchange of property where the values are fixed by written contract until the property received in exchange was sold. Such a construction is not borne out by the decisions of the board of tax appeals herebefore referred to.
The case presents difficulties but the testimony leaves no doubt that the Lee Plaza Hotel in 1928 was worth far less than the Detroit Investment Company contracted to pay for it. The government states that it may be conceded that the taxpayer paid more than the hotel property was worth, but claims that nevertheless the "profits" on the four parcels, as shown by the taxpayer's return, are income. *Page 364 
There being an exchange of properties, true value could be shown notwithstanding a written contract of the parties.
This conclusion of the main question involved makes it unnecessary to discuss other dependent questions. I, therefore, concur in the foregoing opinion.
FEAD, C.J., and NORTH, J., concurred with BUTZEL, J.