Court Opinion

ID: 4624171
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:54:36.642815+00
Date Added: 2024-06-11T07:56:29.023250
License: Public Domain

JAMES J. O'TOOLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.O'Toole v. CommissionerDocket No. 19402.United States Board of Tax Appeals12 B.T.A. 769; 1928 BTA LEXIS 3459; June 22, 1928, Promulgated *3459  The amount of gain from the sale of mineral rights determined.  C. B. Prothro, Esq., for the petitioner.  L. L. Hight, Esq., for the respondent.  TRAMMELL*769  This is a proceeding for the redetermination of a deficiency in income tax for 1921 in the amount of $920.32 and a delinquency penalty of 25 per cent, amounting to $230.08, making a total deficiency of $1,150.40.  The issue results, first, from the action of the respondent in including all of the gain derived from the sale of royalty interests involved, to the petitioner and not dividing the same between petitioner and his coowner; second, a mathematical error in addition made by the respondent which was conceded at the hearing; and, *770  third, in treating as taxable transactions the transfers of royalty interests to the petitioner's wife and four other individuals.  FINDINGS OF FACT.  The petitioner is an individual residing in Shreveport, La.  On April 12, 1921, the petitioner and one Thaddeus I. Woods acquired for a consideration of $15,000 from Anna B. Williamson and her husband, J. F. Williamson, an undivided one-half interest in all oil, gas and other minerals in, on or*3460  under the following described lands, to wit: The east 1/2 of the SE. 1/4 of section 21, and the NE. 1/4 of the NE. 1/4 of section 28, all in township 23 N., Range 8 W., Claiborne Parish, Louisiana.  The cost to the petitioner was one-half of the total consideration, Woods paying the other half.  The petitioner and his coowner, Woods, transferred to various persons undivided interests or units in said mineral rights.  The total amount of $16,150 was received by Woods and the petitioner.  After the conveyance by Woods and the petitioner by 17 separate conveyances, receiving a total consideration of $16,150, the petitioner and Woods divided between themselves the balance of the undivided interests, the petitioner receiving 11/96 of a one-half interest, which interest he conveyed to his wife for a recited consideration of $2,500.  Woods conveyed to the wife of petitioner one undivided 1/96 interest for a recited consideration of $350.  Prior to the division the petitioner and Woods had conveyed four other interests in the mineral rights: One interest to one Wallace, who was president of the Exchange National Bank, the consideration recited in the conveyance being $500.  An interest*3461  was conveyed to one Neilon, cashier of the same bank, the consideration recited being $500.  Another interest was conveyed to one Ward, the consideration recited being $1,000.  Another conveyance was made of an interest to one Pickett, the consideration recited being $500.  These conveyances to the last-named individuals were made for services rendered.  A draft had been sent to the Exchange National Bank for $15,000, representing the purchase price of the mineral interests acquired by the petitioner and Woods and the petitioner arranged with Wallace and Neilon to hold this draft for an extra day in order to enable them to raise the money.  In consideration for this service the petitioner and Woods conveyed to Wallace and Neilon the interests above set out.  Ward was a wealthy and influential man in the community and the $1,000 interest was conveyed to him for his assistance in financing and finding purchasers for the interests which the petitioner and Woods were undertaking to sell in the mineral rights.  Pickett gave the petitioner and Woods information about the mineral rights and *771  from whom it might be acquired.  For this service Ward and Pickett received from the petitioner*3462  and Woods their respective interests.  No cash or other thing of value other than the services rendered by them was given in payment for the interests of the above individuals.  Of the 11/96 of a one-half interest conveyed to his wife by the petitioner, she sold 6/96 for $2,100 and 2/96 for $750, making a total of $2,850.  The petitioner's wife paid no consideration for the interest conveyed to her by the petitioner.  It was conveyed to her merely as a convenience to the petitioner.  The petitioner and Woods together incurred the following expenses in connection with the transaction: Cost of abstract $128Attorneys' fees250Three trips to Haynesville, La25403The petitioner's portion of these expenses was $201.50.  OPINION.  TRAMMELL: At the hearing the respondent conceded that the gain derived from the sale of the mineral rights should be divided equally between the petitioner and Woods.  No further discussion of that question is necessary.  The respondent also conceded that he had made a mathematical error in his deficiency notice in determining that the selling price of O'Toole's interest was a total of $28,850.  The addition being erroneous, *3463  the correct amount upon the respondent's theory should have been $25,450.  The petitioner contends that the consideration recited in the deed to his wife was not in fact received and that no consideration was received.  Yet he does not contend that the transfer to his wife was a gift but merely that the transfer was for his own convenience.  He was threatened with claims by certain creditors and he desired to protect himself by this means.  In view of the testimony, it is our opinion that the recited consideration of $2,500 in the conveyance from the petitioner to his wife should not be added to the petitioner's income.  Since, however, the conveyance from the petitioner to his wife was not an actual bona fide transfer of a beneficial interest, the consideration received by the petitioner's wife should be treated as having been received by the petitioner.  The petitioner's wife sold a portion of the interest she received in one transaction for $2,100 and also another interest for $750, making a total of $2,850 to be added to the *772  gross amount received by the petitioner in lieu of the $2,500 consideration named in the transfer to the petitioner's wife.  With respect*3464  to the four conveyances made by the petitioner and Woods to Wallace, Neilon, Ward, and Pickett, it appears that these transfers were made without any money consideration but that they were made for services rendered by these individuals to the petitioner and Woods in enabling them to secure and sell the mineral interests.  If the value of the services is to be considered in determining the gain, it should be offset by the corresponding increase in the cost of the property or expense in connection therewith.  Omitting the amounts received by the petitioner's wife from the conveyances made by her for the petitioner, and also omitting the amounts of the considerations recited in the conveyances to Wallace, Neilon, Ward and Pickett, the petitioner and Woods together received as the purchase price $16,150.  One-half of this amount, or $8,075, was received by the petitioner.  To that amount should be added the amount of $2,850 received as consideration from the conveyances by petitioner's wife.  The mineral rights cost the petitioner $7,500 and his proportion of the expenses, aside from the conveyances to Wallace, Neilon, Ward and Pickett, was $201.50.  Reviewed by the Board.  Judgment*3465  will be entered under Rule 50.