Court Opinion

ID: 4621751
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:45:18.712865+00
Date Added: 2024-06-11T07:56:03.353589
License: Public Domain

JOSEPH W. ROBINSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Robinson v. CommissionerDocket No. 33096.United States Board of Tax Appeals21 B.T.A. 907; 1930 BTA LEXIS 1770; December 26, 1930, Promulgated 1930 BTA LEXIS 1770">*1770  In 1915 the petitioner was permitted by the principal stockholder of the Libbey Glass Co. to purchase from him 200 shares of the capital stock of the company, which was his employer, at a price less than its real value.  In 1922 the petitioner received stock in another corporation in exchange for his shares of stock in the Libbey Glass Co., which had a value greatly in excess of the price actually paid for the Libbey Glass Co. stock when acquired by him in 1915.  Held, that the evidence does not support the contention of the petitioner that the difference between the purchase price in 1915 and its real value at that date was a gift to the petitioner, but that the purchase price is the basis for the determination of the profit realized in 1922 upon the disposition of the stock.  Thomas O. Marlar, Esq., for the petitioner.  P. M. Clark, Esq., and C. C. Holmes, Esq., for the respondent.  SMITH 21 B.T.A. 907">*908  This is a proceeding for the redetermination of a deficiency in income tax for 1922 of $5,635.60.  The petitioner alleges that in the determination of the deficiency the Commissioner committed the following errors: (a) Addition to income of $32,1051930 BTA LEXIS 1770">*1771  as profit on liquidation of 200 shares of Libbey Glass Co. stock; (b) Disallowance of fair market value of Libbey Glass Co. stock at the time received for the purpose of computing gain or loss on liquidation.  FINDINGS OF FACT.  Upon his graduation from college the petitioner, in 1911, became an employee of the Libbey Glass Co.  His employment was at the instance of E. D. Libbey, the principal stockholder, who had been an intimate friend of his father for many years and a lifelong friend of the petitioner.  Petitioner received no salary from the company in 1911.  In 1912 his compensation was at the rate of $35 per month.  Libbey desired the petitioner to learn the business thoroughly.  He was, therefore, employed in many different departments of the company in different capacities for that purpose.  In 1914 he had an offer of employment from the Owens Bottling Co. at a large increase in salary.  He talked about this offer with Libbey, who told him that he would like to have him stay with the Libbey Glass Co.  He further told him that if he would do so he would make arrangements to let the petitioner have 200 shares of stock in the company at a price of $200 per share and that1930 BTA LEXIS 1770">*1772  in payment therefor he would accept the petitioner's promissory note secured by the shares; that the note would bear 5 per cent interest and that probably the dividends would eventually pay off the note.  The stock was worth more than $200 per share, but not in excess of $396.52 per share.  In 1915 the petitioner secured the 200 shares at the price and upon the terms stated by Libbey.  The petitioner took up the note before it had been matured by the application of dividends and eventually became the owner of the 200 shares in question.  The petitioner continued on intimate terms with Libbey during the balance of his life.  Libbey died in January, 1925, and shortly thereafter the petitioner became the active head of the Libbey Glass Co.  The Libbey Glass Co. was a close corporation.  There were but few stockholders.  There were no sales of the stock in or about 1915 to the knowledge of the petitioner.  In 1922 the petitioner exchanged his 200 shares of stock in the Libbey Glass Co. for shares of stock in a successor corporation of a fair market value of $72,105.  In his income tax return for 1922 the petitioner reported no gain from this transaction.  Upon the audit 21 B.T.A. 907">*909 1930 BTA LEXIS 1770">*1773  of this return the Commissioner increased the income reported by $32,105, the difference between the cost to the petitioner of the 200 shares of stock in question and the admitted value of the shares received in exchange.  OPINION.  SMITH: The question presented by this proceeding is the proper basis for the determination of the gain upon the exchange of petitioner's 200 shares of stock in the Libbey Glass Co. in 1922 for shares of stock which had an admitted value of $72,105.  The respondent contends that the basis is the cost of the property.  (Section 202(a) of the Revenue Act of 1921.) The petitioner contends, on the other hand, that the basis is the fair market value of the stock at the date that he received it in 1915.  What this fair market value is is not disclosed by the record except that it was in excess of $200 per share and not in excess of $396.52.  The petitioner contends that Libbey made him a gift of part of the market value of the shares of stock received in 1915; that the amount of this gift was the difference between $40,000 and the fair market value of the shares.  In making this contention the petitioner places chief reliance upon the decision of the Board1930 BTA LEXIS 1770">*1774  in , wherein we held that the difference between the fair market value of land conveyed to Robertson and the amount paid therefor constituted a gift and that the taxable gain arising from the sale of the land was the difference between the fair market value at the time received and the selling price.  In that case the facts were that Robertson's mother-in-law, who lived with him, offered to sell him land of a fair market value of $300 per acre at $165 per acre; that Robertson protested that the land was worth much more than that and that he would pay his mother-in-law $200 an acre for the land; that the purchase was therefore made at a price of $200 per acre.  We were of the opinion that Robertson's mother-in-law made him a gift of the difference between the fair market value of the land and the amount which he paid for it.  We think that the facts in the Robertson case were substantially different from those which obtain in the instant proceeding.  The stock of the Libbey Glass Co. was closely held.  The petitioner knew of no sales of the stock in or about 1915.  If the market value was only slightly in excess of $200 per share1930 BTA LEXIS 1770">*1775  there would seem to be no basis for a contention that Libbey intended to make a gift.  Libbey did not state to the petitioner that he intended to make the petitioner a gift.  Upon this point the petitioner deposed that, when he discussed with Libbey the offer which he had received from the Owens Bottling Co., Libbey "* * * told me he wished I would stay where I was and we talked about the future, about my future 21 B.T.A. 907">*910  with that company [Libbey Glass Co.] and it was during that conversation that he told me that he would make arrangements to let me have stock in the company, which I did not own at that time." Asked as to what, in the petitioner's opinion, the stock was worth in 1915, the petitioner stated: Well, I could not say exactly what it was worth, but I recall distinctly that Mr. Libbey told me he was letting me have it at a much lower figure than it's real value but that he was doing it as a personal favor to me.  He was doing it in a way to make it more attractive for me to stay there.  The petitioner further testified: Q Did you or did you not consider yourself a representative of Mr. Libbey at the plant?  A I always thought so.  Q Did you advise him of1930 BTA LEXIS 1770">*1776  the conditions at the plant?  A Always during his life.  The basis for the determination of the gain or loss upon the sale or other disposition in 1922 of property acquired by gift prior to 1921 is "the fair market price or value of such property at the time of such acquisition." (Section 202(a)(3), Revenue Act of 1921).  Where it is clear from the evidence that a vendor of property intends to make a gift of a part of the value of the property sold, we see no objection to adding the value of the gift to the purchase price of the property for the purpose of determining the actual gain realized by the vendee upon a subsequent sale of the property.  That was the principal applied by the Board in the Robertson case, supra. In all such cases, however, the facts must be closely scrutinized.  As we said in : * * * Whether such difference [difference between the fair market value and purchase price] could be added to the purchase price to arrive at the basis to be used in computing gain or loss, where the alleged gift was made prior to January 1, 1921, is a question which we find it unnecessary to discuss; certainly it could be1930 BTA LEXIS 1770">*1777  done, if at all, only where the evidence of a gift and its value is most convincing.  We are of the opinion that in the instant proceeding the evidence does not warrant a finding that Libbey intended to make or did make a gift to the petitioner in 1915.  At most, he sold shares of stock in a closely held corporation at a bargain price and a gift of a part of the market value can not be predicated upon such slight evidence of an intention to make a gift.  The determination of the respondent that the petitioner realized a profit of $32,105 upon the disposition of the 200 shares of stock in question in 1922 is sustained.  Reviewed by the Board.  Judgment will be entered for the respondent.21 B.T.A. 907">*911  STERNHAGEN, concurring: I agree that the evidence does not prove a gift and that the basis for determining the gain is the cost of $200 a share irrespective of the value of the shares when purchased.  But I can not accept the dicta that a transfer of title to a single piece or lot of property for a price may be treated as part gift and part sale because the price is less than the value of the property, - that "there is a gift of a part of the value of the property." The transaction1930 BTA LEXIS 1770">*1778  is no less a single purchase or sale merely because the price is inadequate any more than it would be if the price were excessive; in which case, I take it, the seller could not escape tax on the theory that the gain was really a gift.  And, in my opinion, the violation of accepted legal concepts is not softened by a bland distinction based on a family or friendly relation between the parties which makes it easy or hard to believe that such a "gift" was intended.  MORRIS, VAN FOSSAN, MURDOCK, and MATTHEWS agree with this concurring opinion.