Court Opinion

ID: 4598283
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:20:56.73715+00
Date Added: 2024-06-11T07:51:56.385975
License: Public Domain

P. L. BRISTOL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bristol v. CommissionerDocket No. 9173.United States Board of Tax Appeals10 B.T.A. 306; 1928 BTA LEXIS 4143; January 27, 1928, Promulgated *4143  Neither gain nor loss resulted from the petitioner's sale of a certain business building for shares of stock.  Albert F. Hillix, Esq., for the petitioner.  A. H. Fast, Esq., for the respondent.  LANSDON *306  The respondent rejected, in part, a claim for abatement with a resulting deficiency in income tax for the year 1919 in the amount of $1,237.88, all of which is in controversy.  The petitioner alleges that the respondent erred in his determination of gain from the sale of capital assets.  FINDINGS OF FACT.  The petitioner is an individual who resided at St. Joseph, Mo., in the taxable year.  On March 18, 1919, he sold a certain business building to the Bristol Supply Co., hereinafter referred to as the "company," a Missouri corporation, and received therefor stock of the vendee of the par value of $100,000.  Prior to March 17, 1919, the business incorporated at that date as the Bristol Supply Co., had been operated as a partnership under the trade name of Bristol Brothers.  The building in which the operations of the partnership were carried on was the individual property of the petitioner.  The parties agree that the depreciated cost*4144  of such building at the date of sale was $85,624.60, and we find that such amount is the basis for determining the gain or loss resulting from the sale.  In the opening balance sheet of the company as of March 17, 1919, good will and inventory are included as assets in the respective amounts of $20,000 and $131,751.98.  In his adjustment of the tax liability of the company for its first taxable year, the respondent disallowed all of the good will and the inventory in the amount of $15,651.98, as factors of invested capital.  Such amounts had not been included in the asset accounts of the partnership.  The opening *307  balance sheet of the company, as amended by the respondent, shows a net worth of $172,448.02, and outstanding stock of the par value of $208,100, and that the stock had a book value of $82.86 per share.  On or about the date of incorporation of the company certain employees thereof purchased 11 shares of its stock at $100 per share.  There was an oral agreement between such purchasers and the vendor that this stock should be repurchased by the company at the same price at the option of the vendees, and such repurchase was afterwards made.  In the same year*4145  50 shares of stock were sold to an applicant for employment, by the company, at $100 per share.  This purchaser was employed and worked as a salesman for one year, at the end of which time he was discharged by the company.  After peddling his stock about for some time without finding a purchaser he finally resold his 50 shares to the company for $4,250.  OPINION.  LANSDON: The respondent has determined a gain on the transactions here involved in the amount of $14,375.40.  He bases this result in his finding that the stock received by the petitioner had a value of $100 per share, or a total value of $100,000.  The petitioner claims that the true value of the stock at such date was no more than the book value of its assets as shown on its amended balance sheet, which has been used by the respondent and accepted by the company in the determination of the invested capital of the company for its first taxable year.  As a basis for his determination of value, the respondent relies entirely on the sales of stock as set forth in our findings of fact.  We are of the opinion that sales made in such circumstances are not a true measure of fair market value.  In the absence of representative*4146  sales of the stock we must look to the assets to determine its fair market value.  The evidence is conclusive that the good will and the appreciation of inventory were taken into assets solely for the purpose of serving as balancing entries.  While the respondent's exclusion of these items from invested capital can not be accepted as proof of their lack of value, we think that having been so excluded they should not afterward, without proof of value, be restored to assets for the purpose of determining the value of the stock.  We are of the opinion that the stock received for the building had no value in excess of the agreed depreciated cost of the building, and that the transaction resulted in neither a deductible loss nor a taxable gain.  Judgment will be entered on 15 days' notice, under Rule 50.