Court Opinion

ID: 4496101
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:40.802861+00
Date Added: 2024-06-11T15:04:03.251907
License: Public Domain

Murdock,
dissenting: I think that where the shares sold can be identified by a certificate they should take the basis applicable to the shares represented by that particular certificate. I do not agree with the prevailing opinion in so far as it holds, following the decision of the Second Circuit Court of Appeals in Miller v. Commissioner, 80 Fed. (2d) 219, that identification by designation to one’s broker of a particular lot of stock to be sold is controlling even though it appears that the broker actually delivered stock certificates which are identified as those received in the purchase of some other lot. McCarter designated to his broker the shares to be sold. According to the stipulation the broker might have delivered proper certificates to carry out, at least in part, the instructions of his principal. But, instead, he actually delivered certificates which can be identified with some lot other than that which McCarter intended to sell. McCarter ratified his agent’s action by allowing it to stand. His gain or loss must be measured by the basis applicable to the property which he actually sold, rather than by applying the basis of the stock which he merely intended to sell. McGinley Corporation v. Commissioner, 82 Fed. (2d) 56, affirming 31 B. T. A. 266. The first in, first out rule is in no way involved whenever the shares sold can be identified in some way.
The Supreme Court, in Helvering v. Rankin, 295 U. S. 124, said:
The fallacy ⅜ * * lies in the assumption that shares of stock can be identified only through stock certificates. It is true that certificates provide *540the ordinary means of identification. But it is not true that they are the only possible means.
That was a case in which identification by certificates was impossible. The Court held that shares,sold might be sufficiently identified by designation to the broker to make inapplicable the “first in, first out” rule. I do not infer from what the Supreme Court said in that case that identification by designation is to take precedence over identification by certificates. Indeed, I think the opposite inference could be more reasonably drawn. With all due respect to the Second Circuit Court of Appeals, I do not agree with its decision in the Miller case. Furthermore, the three rules laid down by the Circuit Court in that case, apparently as all-inclusive rules, conflict within themselves. Suppose a taxpayer who had purchased several equal lots of one kind of stock at different times and at different prices had received for the lot first purchased certificate A, for the next lot purchased certificate B, and so 'forth; he instructs his broker to sell the second lot of stock which he purchased; and the broker delivers certificate C instead of certificate B. Rule 2 of the Miller case would require that the basis applicable to the second lot of stock purchased be used. The next year the taxpayer directs his broker to sell a like number of shares but does not designate the lot. The broker this time delivers certificate B. Rule 1 of the Miller case would apply and, again, the basis to be used would be the cost of the second lot purchased. Obviously the same basis could not be used twice. No such difficulty as this will arise if the Commissioner is permitted to use the rules which he has always used, except as now modified by the RcmJcin decision; that is, where there is no designation and no other means of identification, he applies the first in, first out rule; in cases where there is identification by certificates, he uses that means of identification; and, finally, in cases where there is identification by designation of shares otherwise not identifiable, then that method of identification must be used.
McMahon, Seawell, Leech, and TurneR agree with this dissent.