Court Opinion

ID: 9442542
Source: CourtListenerOpinion
Date Created: 2023-08-03 18:51:07.721022+00
Date Added: 2024-06-11T16:41:24.163176
License: Public Domain

L. HAND, Chief Judge
(dissenting).
On the books of the company Bronson was entitled to. 384,000 of the Option B. shares and the other shareholders to 1,816,-000 — about.five sixths of the whole 2,200,-*537000. Therefore, if we count the option on the bonds as having no value, when Bronson gave 148,000 shares to the other shareholders he ought to have kept less than 30.000 shares for himself; instead of this he kept 152,000, an excess of 122,000 shares, which has been reduced to 111,000. In his “answer to the respondent’s answer” his explanation for the omission of any mention ■of these in his return was that the shares were not income because he had “paid fully for them pursuant to his contract to pur■chase * * * and that none of said shares were sold in 1929.” This hi-s attorney more fully developed upon the argument in the Tax Court, saying that without “tearing a part of the various contract provisions and isolating a provision by itself” it was impossible to “devise out of [sic] this continuing transaction from 1927 to 1929 any free stock he ever got.” Bronson did therefore definitely assert that he had never “realized” any gain in 1929 from the 152.000 which he retained for himself. I do not say that that was a totally untenable position, or that it alone constituted that “clear and convincing” evidence which fraud demands; but plainly it depends upon the linkage of the 1929 contract with the 1927 ■contract, so that the later contract can be treated as a “modification” of the earlier. I do not rest on the language of the 1929 contract that, when it was performed, “the original agreement shall be cancelled and shall be of no further effect or validity”; but I do weigh much more heavily than do my brothers Bronson’s suppression in 1931 of the 1929 contract. The Commissioner had challenged his deduction in 1929 of 40,000 shares, which he had defended as a payment of debts due before that year. Those shares apparently ■came out of the 152,000 shares which he had just received, not out of the 146,000 he had got in 1927 and later. To excuse his silence he says, as I understand it, that it was not material to the deduction what was the source of the shares; and that would be a good excuse, if the shares were still worth only $1. However, 200,000 had just been sold for $3.50 and he did not assert that the debts were more than $40,-000. Bearing that in mind, it seems to me most unlikely that he should have suppressed the 1929 contract for any other than a fraudulent motive; and indeed it must be remembered that his position was that he disclosed it — a statement which, however, the Tax Court did not believe. When fraud is in issue, much depends upon the impression of rectitude and credibility that the party makes upon the tribunal, if he appears in person. That is of course all lost in the record, although in the case at bar it must be remembered that Bronson’s credibility was impeached by a previous conviction for fraud in transactions concerning this same company. I cannot of course know how I should have decided the case, had I been the trial court, but I cannot agree that we are justified in holding that the finding was “clearly erroneous” of a judge who saw the taxpayer, and had a chance to measure the truth of his excuse. Incidentally, I cannot find that on the stand he testified that he had supposed that no gain had been “realized” upon the 111,000 shares in 1929.
There remains the suggestion made, so far as I can find, for the first time on appeal that Bronson may have been justified by the fact that some of those who took up the 200,000 shares in 1929 were in fact his “nominees.” He did not plead this ; he did not suggest it in his testimony. It rests upon Van Ackere’s testimony that there were shares so held, though how many he did not say; and upon the fact that in 1929 he paid a capital gains tax upon the sale of more shares than the company’s records show that he had transferred in that year. Although this evidence does show that the corporate records were not a complete list of his holdings it is reasonable to insist that he, who alone knew the facts, should have proved how many of those who took up the 200,000 shares were in fact his “nominees.” It does not seem to me fair to the Commissioner to assume, as we must in order to exculpate Bronson on this ground, that he had enough undisclosed shares to justify his retention of the 111,000 in question.
I have not tried to compute the correctness of the deficiency, because my views are not to prevail.