Court Opinion

ID: 4596529
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:17:19.098337+00
Date Added: 2024-06-11T07:59:14.990431
License: Public Domain

P. L. WHEELER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Wheeler v. CommissionerDocket No. 69028.United States Board of Tax Appeals32 B.T.A. 917; 1935 BTA LEXIS 873; July 10, 1935, Promulgated *873  Stock in two corporations was exchanged in a nontaxable transaction for stock in a third corporation and a portion of such stock of the third corporation, not identified as representing any particular shares of the two corporations, was sold at a profit.  Held, the cost of the stock in the two corporations should be allocated equally to all the shares of the third corporation for which exchanged for the purpose of computing gain from the sale of part of such shares of the latter corporation, in accordance with the rule laid down in Christian W. Von Gunten,28 B.T.A. 702">28 B.T.A. 702; affd., 76 Fed.(2d) 670 (6th Cir.); Helvering v. Stifel, 75 Fed.(2d) 583 (4th Cir.); Olive Hume Oliver,30 B.T.A. 1381">30 B.T.A. 1381; and Alvan T. Fuller,31 B.T.A. 154">31 B.T.A. 154. Andrew T. Smith, Esq., Virgil Y. Moore, Esq., Robt. H. Lucas, Esq., and N. L. McLaren, C.P.A., for the petitioner.  Willis R. Lansford, Esq., and Edward M. Woolf, Esq., for the respondent.  SEAWELL*917  The petitioner has appealed from the respondent's determination of a deficiency in income tax for the year 1929 in the amount of*874  $4,501.29 and assigns errors as follows: In computing the profit realized by petitioner upon the sale of part of stock received in reorganization in exchange and at the same time for stock of two separate and distinct corporations, the respondent erred in holding that the certificates of stock sold represented shares of stock, only of that corporation, whose stock was earliest acquired by petitioner.  Respondent further erred in his failure to assign as the basis of each share of new stock acquired, the average cost of the old shares exchanged.  The petitioner asks the Board to order: * * * the computation of the profit on petitioner's shares of Transamerica Corporation stock sold, by apportioning the basis between the earliest acquired stock of both companies, assigning to each as its cost the same proportion of the total cost of both that the number of shares of Transamerica received in the exchange, for exchanged stock of each, bears to the total number of shares received, or by extension of the "first in, first out" rule to apply to serially numbered Transamerica certificates sold, or by using as the basis for Transamerica certificates sold an aliquot part of the cost of*875  all the shares of the old companies exchanged for Transamerica stock.  FINDINGS OF FACT.  The facts are stipulated and so far as material to the issues herein, are in substance as follows: 1.  Petitioner acquired by purchase: (a) On February 2, 1925, 20 shares of the capital stock of Bancitaly Corporation, which after splitups, stock dividends, and exercise of rights amounted to 381.12 shares, at a cost of $11,557.50.  *918  (b) On August 25, 1925, 25 shares of the same stock, which after splitups, stock dividends, and exercise of rights amounted to 381.12 shares, at a cost of $13,967.50.  (c) On December 1, 1925, 25 shares of the same stock, which after splitups, stock dividends, and exercise of rights amounted to 255.36 shares, at a cost of $12,165.  2.  Petitioner acquired as a stock dividend on July 29, 1927, 80 shares of the same stock, the apportioned cost of which was $6,428.47, and on September 24, 1927, stock dividend on the 80 shares referred to next above of 11 shares.  3.  On November 20, 1928, petitioner owned 1,109.0286 shares of the capital stock of Bancitaly Corporation, acquired as set forth above at a total cost of $44,118.57 [$44,118.47]. *876  4.  Petitioner acquired by purchase: (a) On February 7, 1928, 300 shares of the capital stock of Bank of Italy N.T. & S.A. at a cost of $79,800.  (b) On February 21, 1928, 125 shares of the same stock at a cost of $35,500.  (c) On May 22, 1928, 20 shares of the same stock at a cost of $5,800.  5.  On November 20, 1928, petitioner owned 445 shares of the capital stock of Bank of Italy N.T. & S.A., acquired as set forth above at a total cost of $121,100.  6.  Pursuant to agreement and in accordance with a plan to exchange his stock in the two companies named above for stock of Transamerica Corporation, petitioner on November 20, 1928, delivered to the trustee of a trust (organized to assist in the formation of Transamerica Corporation) 1,108 shares of Bancitaly Corporation and 445 shares of Bank of Italy N.T. & S.A. stock, received in exchange trustee certificates: for 1,108 shares of Bancitaly, C 727 for 1,108 units (even exchange); for 445 shares of Bank of Italy, B 148 for 779 units (one and three-quarters for one).  7.  On March 19, 1929, the trust was terminated and Transamerica Corporation, having perfected its organization, issued to petitioner (in exchange for*877  trustee certificates for 1,887 units issued on November 20, 1928) its certificates: SFA 2235 to 2252, inclusive, for 100 shares each, a total of 1,800 shares; SFB 8727 for 87 shares.  8.  The Commissioner of Internal Revenue has held that the exchange of shares of Bancitaly Corporation and Bank of Italy N.T. & S.A. for shares of Transamerica Corporation did not give rise to recognizable gain.  9.  Subsequently to the exchange and before the end of the year 1929 petitioner received stock dividends on his Transamerica shares as shown below: April 25, 19291%July 25, 19291%September 10, 1929150%October 25, 19291%10.  On July 16, 1929, petitioner sold 200 shares of Transamerica Corporation for $27,239 and delivered to his broker on the same day certificate 2235 and 2236 for 100 shares each.  11.  On July 17, 1929, petitioner sold 100 shares of Transamerica Corporation for $13,569.50 and on the next day delivered to his broker certificate 2252 for 100 shares.  *919  12.  On October 29, 1929, petitioner sold 500 shares of Transamerica Corporation for $31,135.00 and on the same day delivered to his broker certificates 2247, 2248, 2249, 2250 and*878  2251 for 100 shares each.  13.  Petitioner reported in his tax return for the year 1929 a profit on the sale of Transamerica Corporation, including profit on 76 shares not in controversy here, of $30,842.70, the difference between sales price of $82,284.82 and average cost price, as figured by him, of $51,442.12.  14.  Respondent bases his deficiency on the difference between sales price of $82,284.82 and cost of earliest acquired stock of Bancitaly Corporation of $25,286.59.  That the exchange of stock for stock was a nontaxable transaction appears from the record not to be in dispute.  OPINION.  SEAWELL: The instant case and the case of ; affd.,  (6th Cir.), are so much alike that, in our opinion, the same principles of law are applicable to the issues in each.  In the Von Gunten case, pursuant to reorganization, some of the shares of one company were exchanged for all the shares of another company, while in the instant case the shares of two companies were exchanged for shares of another company, the exchange, as agreed by the parties and herein so determined by the respondent, constituting*879  a nontaxable transaction as was the exchange in the Von Gunten case.  In the instant case, as in the Von Gunten case, all the shares of stock sold were acquired on the same date, through nontaxable exchanges of stock for stock.  In each case the petitioner sold shares of stock of one company for which other stock had been exchanged.  In the instant case the petitioner simply sold on different dates a part of the shares acquired on the date when he exchanged stock of two companies for stock of the company he sold.  In the Von Gunten case the court held that, for the purpose of computing gain from the sale of shares sold, the cost of the old shares should be allocated equally to all the new shares and the Commissioner erred in treating the shares sold as taking the basis of the earliest acquired stock which was exchanged or surrendered in the reorganization.  The reasoning of the opinion in said case, we held, applied with equal force in , and in . To the same effect, see *880  (4th Cir.) In view of the similarity of the facts and issues in the four cases mentioned to those in the instant case, we do not deem it necessary to enter into a discussion of the issues herein which were therein so fully discussed and the reasoning of which, in our opinion, is applicable and controlling in the instant case.  *920  In the instant case shares of stock of Bancitaly and of Bank of Italy were exchanged for certain trust certificates, which were later exchanged for shares of stock of the Transamerica Corporation, some of which latter stock was sold.  There is no dispute as to the number of shares of Transamerica sold and none as to the price paid for them.  The only dispute is as to the cost basis to be used in determining the profit.  The stipulation of the parties shows that the respondent based his deficiency on the difference between the sale price of $82,284.82 and cost of the earliest acquired stock of Bancitaly Corporation, $25,286.59, and has computed a profit of $56,998.23 taxable as capital net gain.  In our opinion and we so hold, the determination of the respondent as above indicated is not*881  in accord with the principles enunciated and applied in the cases we have cited as controlling in the instant case, and therefore his determination is not approved.  The stipulation of the parties contains the data requisite for computing the basis and the deficiency in accordance with the decisions cited and controlling herein.  Decision will be entered under Rule 50.