Court Opinion

ID: 4610728
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:47:31.018109+00
Date Added: 2024-06-11T07:54:07.073880
License: Public Domain

Alice G. K. Kleberg, Petitioner, v. Commissioner of Internal Revenue, RespondentKleberg v. CommissionerDocket No. 102254United States Tax Court2 T.C. 1024; 1943 U.S. Tax Ct. LEXIS 24; November 25, 1943, Promulgated *24 Decision will be entered under Rule 50.  1. In 1933, petitioner owned in community a 3/32 right in all minerals in certain lands in Texas, acquired by her deceased husband in 1919 for services rendered to the then owner, Henrietta M. King.  In September 1933, petitioner, individually and as executrix of her husband's estate, joined with the executors and trustees of the Henrietta M. King estate in a mineral lease to the Humble Oil & Refining Co.  On September 26, 1933, petitioner, individually and as executrix, assigned to the representatives of the said King estate the right to the royalties on said 3/32 interest under the Humble lease for a fixed sum, payable in two installments, i. e., 1933 and 1934.  Held, the agreement of September 26, 1933, was a sale, entitling petitioner to the benefits of the capital gains provisions of the revenue act. Alice G. K. Kleberg, 43 B. T. A 277, followed.  Held, further, since petitioner acquired her interest in the minerals in 1919 when the 3/32 interest was conveyed to her husband, her holding period for application of section 117, Revenue Act of 1934, was in excess of 10 years.2. Petitioner in 1918*25  received as a gift from her mother certain shares of the capital stock and also a certain "account payable" of the Kleberg Town & Improvement Co.Held, that the capital stock became worthless in 1934 and the accounts payable partially worthless in that year, entitling petitioner to the respective deductions.3. Petitioner in 1934 organized the King Ranch Corporation and received all its issued capital stock. She purchased revenue stamps in the sum of $ 1,201.20 to cover the original issuance of the stock to her.  Held, as the petitioner was liable for the revenue stamps under section 800 of the Revenue Act of 1934, she was entitled to deduct the same as taxes paid in that year under section 23 (c) of the Revenue Act of 1934.  Leroy G. Denman, Esq., for the petitioner.Homer J. Fisher, Esq., for the respondent.  Leech, Judge.  LEECH*1025  This proceeding involves a deficiency in income tax for 1934 in the amount of $ 11,696.93.The submitted issues are:1. Whether petitioner is entitled to the application of the capital gains rates and a holding period in excess of 10 years in computing her income tax upon her receipt in that year of $ 37,335.37 as a second *26  installment in payment for her transfer to the Henrietta King estate of her community interest in a contract right to receive future rentals from the Humble Oil & Refining Co.  In the alternative, is petitioner entitled to deduct 27 1/2 percent as depletion on that sum?2. Whether petitioner sustained a loss in the sum of $ 24,800 in 1934 on the capital stock of the Kleberg Town & Improvement Co.3. Whether petitioner is entitled to deduct in 1934 the sum of $ 29,760 as a partial bad debt resulting from a transaction in connection with her interest in the Kleberg Town & Improvement Co.4. Whether petitioner is entitled to deduct the sum of $ 1,201.20 stock transfer stamp tax paid on the original issuance of shares to her of the King Ranch Corporation.5. Whether our former judgments in Docket Nos. 86178 and 86179 (43 B. T. A. 277) are res adjudicata on the issue of fact that the loss did not occur in the year 1933, or any prior year.The petitioner, an individual, resides at Kingsville, Texas, and filed her income tax return for the year 1934 with the collector of internal revenue at Dallas, Texas.FINDINGS OF FACT.The petitioner is the widow of Robert*27  J. Kleberg, Sr., deceased, who for a number of years managed the ranch of her mother.  Henrietta M. King.  In 1918, the petitioner received by gift from her mother a tract of land containing 30,439.23 acres, as her separate estate.  The gift included the headquarters of the ranch and the livestock and dairy herds thereon.  In 1919, Mrs. King conveyed an undivided 3/32 interest in all minerals in the remaining portion of her lands to petitioner's husband, Robert J. Kleberg, Sr., for his services.  This interest was community property of petitioner and her husband.In 1925, Mrs. King died.  In her will, the petitioner's husband and others were appointed executors and trustees with power to continue the operation of her ranch. On September 26, 1933, the executors and trustees of the estate of Henrietta M. King, joined with the petitioner individually and as executrix of her deceased husband's estate by reason of the 3/32 mineral interest, leased the lands of the King estate.  At the same time the petitioner leased her 30,439.23 acres and Robert J. Kleberg, Jr., trustee, leased about 141,000 acres to the Humble Oil & Refining Co. for oil and gas purposes.  This lease covered 971,711.43*28  acres known as the King Ranch lands.  The term was 20 years.  At its *1026  expiration the lessee was entitled to retain the area or areas included within the geologic structures or formations proven to be productive for as long as production should continue.  Royalties were to be paid to the lessors in the amount of one-eighth of the oil or gas produced, $ 1 per long ton on sulphur mined and marketed, and a reasonable royalty on other minerals. There was no obligation to develop the leased premises during the 20-year period by drilling, except as to structures which proved productive and as to offset wells.  But it was understood the Humble Co. was to explore the leased lands as adequately as it could by geophysical and geological technique.A separate simultaneous agreement between the same parties, covering the 971,711.43 acres, provided, inter alia, as follows:The annual rental agreed upon for the twenty (20) year period of said lease is One Hundred Twenty-Seven Thousand Eight Hundred Twenty-Four and 60/100 ($ 127,824.60) Dollars, payable annually although this is not expressed in the lease.Under the same date, the executors and trustees of the estate of Henrietta M. *29  King addressed a letter to the petitioner, as executrix of the estate of Robert J. Kleberg, Sr., deceased, which contained, inter alia, the following pertinent matter:The annual rental provided for in the oil, gas and mineral lease of this date, executed by the Executors and Trustees of the Estate of Henrietta M. King joined by yourself, as Executrix of the Estate of Robert J. Kleberg, Sr., deceased, as provided in the supplemental agreement with the Humble Oil and Refining Company, amounts to $ 127,824.60 per year, which will be credited to the King Estate upon its interest, or paid to it as therein provided annually during the twenty year period of the lease.The three-thirty-second (3/32) portion, which would be payable to Robert J. Kleberg, Sr.'s, estate out of the said annual rental, is $ 11,983.55 per annum.  This annual twenty year rental discounted to its present value at the rate of five percent per annum amounts to $ 149,341.51.We agree to pay you as Executrix one-half of that sum now, and one-half thereof January 2nd, 1934, and said sums shall constitute full settlement with the Estate of Robert J. Kleberg, Sr. for his portion of all the rentals that are to be credited*30  or paid under said lease during the said twenty year period, so that the King Estate will have no further accounting to make for such rentals to the Robert J. Kleberg, Sr. Estate as they are paid or credited from year to year in the future under said lease. This shall not affect in any manner the Robert J. Kleberg, Sr. Estate's rights in the royalties under said lease.Please indicate your approval of this agreement.This offer was accepted and the petitioner received the first one-half of such payment, amounting to $ 74,670.75, on October 4, 1933, and the second half of $ 74,670.75, plus interest of $ 2,352.09, on June 19, 1934.  Under the foregoing contract one-half of these amounts was received by petitioner as individual and the other one-half as executrix of the estate of Robert J. Kleberg, Sr.By reason of such leases the petitioner received two separate sums of income: (a) Upon the lease of her 30,439.23 acres, the sum of *1027  $ 24,656.92, and (b) one-half of $ 74,670.75 and of $ 2,352.09 interest from the King estate from the 3/32 mineral interest, her share being $ 37,335.37 principal sum and $ 1,026.54 interest.The sum of $ 37,335.37, received by petitioner individually*31  in 1934, was the second installment of the proceeds of a sale of her community interest in the contract right to receive future rentals from the oil and gas lease to the Humble Oil & Refining Co.In the early 1900's the St. Louis, Brownsville & Mexico Railroad was built through South Texas and through the King Ranch. On January 12, 1903, the Kleberg Town & Improvement Co. was incorporated by Henrietta M. King, with a capital stock of $ 500,000 divided into 5,000 shares of $ 100 par value each.  By three deeds, she conveyed to the corporation approximately 75,000 acres of land composing parts of her ranch, part of it surrounding the town of Kingsville and part of it near Raymondville, in payment for the entire capital stock of the corporation.  One-half of the stock was issued to the railroad company's nominees as a gift by Mrs. King to induce it to build and operate the railroad through her ranch. On June 3, 1914, by amendment to the charter, the Kleberg Town & Improvement Co. reduced its capital stock from $ 500,000 to $ 50,000 by reducing the number of shares.  New certificates for the 500 shares with a par value of $ 100 each were issued ratably to the stockholders, $ 450,000*32  of the original shares being canceled.  This reduction in the capital stock was reflected on the books of the company, at first by a debit to the capital stock account and credit to a stock retired account in the amount of $ 450,000.  On December 31, 1914, this amount of $ 450,000 was transferred to the profit and loss account.  That account in this amount was reduced to $ 325,000 during the period from 1914 to 1918 by the payment of dividends to shareholders aggregating $ 125,000.  In the year 1918 a dividend of the remaining $ 325,000 was declared and same was transferred from the profit and loss account to accounts payable opened in the name of the stockholders, this sum being divided ratably among them as follows: $ 162,500 to the St. Louis Trust Co., which held the stock issued to the railroad, $ 161,200 to Henrietta M. King, and $ 650 each to two of Henrietta M. King's employees, who held qualifying shares.  No accounts payable were set up in 1914 when the stock was canceled.  No dividend of $ 325,000 is shown in the dividends account in the petitioner's books.  Accounts payable to stockholders were set up in 1918 by journal entry as follows:To Segregate from Profit & Loss *33  Surplus Balance in this account due to creditors on account of capital stock reduction 6-1-14 from $ 500,000.00 to $ 50,000.00, less dividends paid on liquidation as follows: [Listing dividends].*1028  It listed each stockholder's interest in the new accounts designated as accounts payable and made a notation of "Capital Stock Liquidated $ 325,000.00" bearing the date "6-31-18 [sic]."The Kleberg Town & Improvement Co. was prosperous in its early years.  By November 1912 it had paid dividends of approximately $ 500,000.  It incurred operating losses during the years 1917 to 1922, inclusive, but operated at substantial profit during the years 1923 to 1927, inclusive.  It experienced operating losses in each year from 1928 to 1936, but realized operating profits in 1937 and 1938.The corporation was thrown into a deficit status per books by the creation of accounts payable in 1918.  Immediately prior thereto its profit and loss account had a credit balance of $ 294,964.72 and immediately thereafter a debit balance of $ 40,035.28.  It remained in a deficit status every year thereafter to date, except it showed a surplus of $ 19,588.41 in 1926.  The company's balance sheets *34  as of December 31, 1933, and December 31, 1934, were as follows:Dec. 31, 1933Dec. 31,1934ASSETSCash$ 6,596.22$ 3,663.23Notes receivable58,100.8353,571.45Stocks4,850.004,850.00Land29,622.5429,510.34Buildings5,058.015,058.01Furniture and fixtures698.68698.68Sidewalks1,090.691,090.69Street paving2,881.742,881.74Sewerage system12,191.0810,784.83121,089.79112,108.97LIABILITIESAccounts payable117,853.81117,435.97Common stock50,000.0050,000.00Undivided profit (deficit)-46,764.02-55,327.00121,089.79112,108.97At the close of 1934 the corporation had property on hand having book values and assessed values for local property taxes as follows:DescriptionBook valueAssessed value261.19 acres$ 1,005.66$ 1,935.002,287 lots in Kingsville19,777.2157,544.00530 lots in Ricardo2,991.941,480.0019 1/2 lots in Kingsville, including cottages10,793.546,595.00Total34,568.3567,554.00The book values at which the items of realty were carried on the company's books represented only March 1, 1913, value, except in the case of the 19 1/2 lots which value shown represents contracts*35  under which the lots were sold and later reclaimed.  While the realty had a potential value considerably in excess of the book value and was actually *1029  sold for more than the assessed value, the cost of liquidating the realty exceeded the difference between the book value and the sale price.  As of December 31, 1934, all of the assets had an actual value of $ 60,064.24, which was confirmed by subsequent events.  The company was insolvent at that date.For some years prior to 1934, and since, the Kleberg Town & Improvement Co.'s activity has been that of selling its lots, thereby converting its assets into cash, and gradually liquidating.  The community of Kingsville, Texas, where it carried on its principal activity, had a population of from six to seven thousand.  It had municipal improvements and utilities such as paved streets, sewerage systems, electric system, and five elementary schools.  The Texas College of Arts and Industries is located there and has an enrollment of about 1,100 students.  The community has progressed but little since 1934, except in 1942 there was improvement by reason of the Corpus Christi Naval Air Base.  The headquarters office of the King Ranch, *36  the largest in the world, is located in Kingsville.During the year 1918, Henrietta M. King, by written instrument, gave her then stock interest in the Kleberg Town & Improvement Co. to her daughter, the petitioner herein.  The instrument made no mention of the open account standing in Mrs. King's name on the books of the corporation.  The transfer of such account, as distinguished from the stock, was not recorded on the corporation's books.  In 1920 records were made on Mrs. King's books showing the transfer of both the stock and the open account.  When the petitioner's books were set up in 1924, the transfer was there recorded.At the time of the transfer of the stock and open account to the petitioner they were each worth par.The capital stock of the Kleberg Town & Improvement Co. became worthless in the year 1934.The open account due the petitioner, as shown on the books of the Kleberg Town & Improvement Co., became partially worthless in the year 1934 to the extent of $ 29,760, which she charged off in 1934 as a partial bad debt.During the year 1934, in anticipation of the end of the ten-year trust established under the will of Henrietta M. King, the petitioner caused the *37  "King Ranch" to be incorporated.  Petitioner conveyed to said corporation her right to receive her properties from the executors and trustees of her mother's estate.  All of the stock of the King Ranch Corporation was issued to the petitioner.  Petitioner's bookkeeper, acting as her representative and believing in good faith it was petitioner's obligation, attached United States Revenue Stamps at a cost to petitioner of $ 1,201.20, which she paid in 1934.The petitioner kept her books and reported her income on a cash basis during the taxable year involved.*1030  OPINION.The petitioner assigned as error the respondent's disallowance of depletion at the rate of 27 1/2 percent on the sum of $ 24,656.92 received from an oil and gas lease of her 30,439.23 acres of land, amounting to $ 6,780.65.  The respondent concedes, and rightly so, that petitioner is entitled to such deduction under our former decision in Alice G. K. Kleberg, 43 B. T. A. 277. Effect will be given thereto under Rule 50.The first contested issue is whether the petitioner is entitled to the application of the capital gains rates and a holding period of 10 years in computing income*38  tax upon the receipt of the sum of $ 37,335.37 in 1934.  This amount represents a community interest in the second installment payment received for the petitioner's transfer of her right to receive future rentals from the Humble Oil & Refining Co. to the Henrietta M. King estate.  In the alternative, petitioner claims the right to deduct 27 1/2 percent depletion on that sum.  We do not think it is necessary to consider the alternative issue.  In a former proceeding between these same parties we had before us the question whether the petitioner was entitled to depletion at the rate of 27 1/2 percent on the first installment of moneys received in 1933 under this same contract with the executors and trustees of the Henrietta M. King estate, dated September 26, 1933.  We there construed the contract as one of sale of her interests to the King estate and denied the right to a depletion deduction.  The identical contract and the same facts are involved in the present issue, except the question here relates to the receipt in 1934 of the second and final installment payment under the said contract. Res adjudicata is not pleaded, but the reasons which we gave in our former decision for*39  construing the contract to be a sale are persuasive.  We see no reason for departure therefrom.  Knights of Pythias v. Smyth, 245 U.S. 594, 596. We hold that the contract constituted a sale of an asset.  Are the capital gains sections of the revenue act applicable to this sale and, if so, what is the holding period?The respondent contends that the question of the application of the capital gains rate as to the first installment received by this petitioner in 1933 was not passed upon in our former decision. This appears to be the fact.  We did, however, construe this same contract of September 26, 1933, to which the petitioner was a party, as a community owner, in the case of Alice G. K. Kleberg, supra. As to one-half interest in the first installment under that contract, belonging to the estate of Robert J. Kleberg, Sr., we held that the rules applicable to capital gains were to be applied.  We perceive no valid reason for departing from that holding in respect to petitioner's one-half interest received as the second installment in 1934.  Petitioner *1031  concedes she is entitled to no cost basis.  She, however, *40  claims her holding period began in 1919, when she acquired a one-half community interest in the minerals owned by her mother, Henrietta M. King.  If the petitioner's holding period is in excess of 10 years she is taxable on only 30 per centum thereof under the provisions of section 117 of the Revenue Act of 1934.  The respondent argues that the petitioner's right came into existence when she executed the contract of September 26, 1933, selling her interest in the mineral lease to the King estate.  We do not think the respondent's position is sound.  These underlying facts are undisputed.  In 1919, Henrietta M. King conveyed to petitioner's husband, Robert J. Kleberg, Sr., in consideration of his services for a period of years as manager of her properties, an undivided 3/32 interest in all the minerals in her then remaining lands.  From that date, Robert J. Kleberg, Sr., owned a part of the realty, which was a capital asset.  It is well settled in Texas that gas and oil in place are a part of the realty susceptible of ownership and may be conveyed as any other interest in realty by appropriate conveyance.  Lemar v. Garner, 121 Texas 502; 50 S.W. (2d) 769;*41 Brown v. Humble Oil & Refining Co., 126 Texas 296; 83 S.W. (2d) 935; on rehearing, 87 S.W. (2d) 1069; Railroad Commission v. Oil Co., 310 U.S. 573, 579. The petitioner, as the wife of Robert J. Kleberg, Sr., likewise in 1919 became the owner of a one-half interest in the 3/32 as community property.  The sale of the right to receive the rents from the 3/32 interest in the Humble lease to the King estate did not create any new right to the minerals in the petitioner.  It merely changed the form in which the proceeds from the sale of the original mineral rights were to be received.  The cash received was the consideration for the sale of a capital asset.  We recognized this principle in our treatment of the first installment received by the estate of Robert J. Kleberg, Sr., in 1933, in our former decision. See supra.  We there held that the estate's basis was the value as of the date of the death of Robert J. Kleberg, Sr., October 10, 1932, and not September 26, 1933, the date of the sale.  The petitioner's holding period of her interest dates from the time*42  of its acquisition in 1919, and is in excess of the 10 year period.  The petitioner, therefore, is taxable upon only 30 per centum of the $ 37,335.37 received in 1934 as the final installment. 1The issues as to whether the petitioner sustained a loss in the sum of $ 24,800 in 1934 on the capital stock of the Kleberg Town & Improvement Co. and whether the petitioner is entitled to deduct the sum of $ 29,760 as a partial bad debt resulting from a transaction in connection with her interest in said company, being related matters, will be *1032  treated together.  The applicable sections of the revenue act are referred to in the footnote.  2In Alice G. K. Kleberg, supra, the petitioner here having claimed a partial bad debt*43  deduction of $ 29,760 and a stock loss of $ 24,800, representing cost of capital stock of the Kleberg Town & Improvement Co., in her 1934 income tax return, changed her position and claimed these identical deductions for 1933.  We denied both these deductions for the year 1933.  Denial of the partial bad debt deduction was placed on the ground that the requirements of the statute had not been met in that there had been no charge-off.  The capital stock loss was denied on the ground that the stock had value at the end of 1933.  Petitioner now claims these deductions for 1934.One of the consolidated cases included in Alice G. K. Kleberg, supra, involved the same parties as those here.  A tax for 1933 was there contested and thus was a different cause of action.  One of the litigated issues of fact, however, was whether petitioner sustained a loss in that year by reason of this same stock then becoming worthless. We decided that issue against petitioner on the ground that:* * * we do not think petitioner has sustained her burden of proof to show that the stock became entirely worthless in 1933.  Doubtless the value of the stock had shrunk to where it*44  had only a small value in 1933, but that is not enough to entitle her to the deduction which she claims.Petitioner pleads that decision as res adjudicata and thus establishing the essential fact here, i. e., that this stock had value at the opening of 1934.  We think the plea is good and sustain it.  Libbie Rice Farish, 2 T. C. 949.The respondent, nevertheless, contends that there was no identifiable event which occurred in 1934 such as usually marks the time when stock becomes worthless. The stock in this company was closely held.  The company had been in a deficit status since 1918.  In 1934, and for some years prior thereto, it was functioning only for the purpose of liquidating its assets.  In the former Alice G. K. Kleberg case, supra, this Court strongly indicated that this stock became worthless in 1934.  Such expression was obiter dictum there.  We agree, however, that the fact is as there suggested.  The record here reveals that the company was, in reality, insolvent at the close of 1934 and that its stock then had no actual or potential value.  We can not disregard realities.  The stock became worthless in 1934.  We have*45  so found.The respondent has properly advanced a new theory, not presented in the former proceeding, bearing on these two issues.  The argument is made that the petitioner's entire interest in the Kleberg Town & Improvement Co. is a stock interest only.  If this were established, it would follow that the stock did not become worthless in 1934.  *1033  The basis of the hypothesis is that when the capital stock was reduced in 1918 there was no declaration of a dividend of the sum of $ 325,000, and, therefore, no proper legal liability in the form of "accounts payable" created.  The substance of the argument is that the book treatment of the transaction shows a contribution to capital rather than a conversion of a stock interest into a creditor's interest in the corporation.  Respondent points out that, while certain dividends were formally declared, there is no written resolution declaring any dividend in the amount of $ 325,000; that the instrument whereby Henrietta M. King made an assignment of her stock interest in the company to the petitioner made no mention of her "account payable" in the company.  These facts lend support to respondent's theory.  Ordinarily we would regard*46  them as quite persuasive.  When viewed in conjunction with the other testimony, we do not believe they are determinative.  There is credible testimony that such dividend had been, in fact, declared.The absence of a written declaration of a dividend loses considerable of its significance where the corporation is small and its stock closely held.  See M. Jackson Crispin, 32 B. T. A. 151. Such corporations often handle their affairs rather informally.  Where the interests of third parties are not involved, the internal management of a corporation is its own personal concern.  Preciseness of conduct is in the interest of its protection.  Furthermore, we ought not to lose sight of the fact that this company was then engaged in the single activity of liquidating its remaining assets.  Such a condition is conducive to handling corporate matters with informality.  The transfers of the gifts of the stock interest and the account payable to Henrietta M. King to the petitioner were duly recorded on their respective personal books in 1920 and 1924.  These facts ought not to be ignored.  They antedate the tax year involved by more than 10 years.  This should dispel*47  any possible suspicion that these transactions were recorded with a view of tax consequences in the year involved herein.  We feel justified in accepting as a fact that the dividend was declared.  The accounts payable are a valid and legal creditor liability.  This conclusion requires us to hold that the petitioner has sustained the burden of establishing that the capital stock of the Kleberg Town & Improvement Co. became worthless in the year 1934.  Respondent is overruled upon this issue.Nor do we think the respondent properly disallowed a partial bad debt deduction to the extent of $ 29,760, ascertained and charged off by the petitioner in 1934.  As we have already indicated in this opinion, in our former decision we denied the deduction for a partial bad debt deduction on the ground that the petitioner had not met both requirements of the statute permitting such deductions, i. e., ascertainment *1034  and charge-off, and we found as a fact there had been no charge-off.  There is no dispute that the petitioner has charged off the partial loss in 1934.  Some leeway must be given to the creditor's judgment as to when the debt is partially worthless, if such judgment is based*48  on factual circumstances.  We do not understand that the respondent contests the debt was partially worthless in 1934, in the event we concluded the debt was legally created.  We have so determined.  We hold the petitioner is entitled to a deduction of the sum of $ 29,760 as a debt which became partially worthless in 1934.The last issue is whether the petitioner is entitled to deduct the sum of $ 1,201.20 she disbursed for documentary stamps on the original issuance of shares of the King Ranch Corporation to her.  There is no dispute that the expenditure was made by the petitioner.  It is not clear whether petitioner claims the right to the deduction as a business expense under section 23 (a) or as a tax under section 23 (c).  The applicable sections are referred to in footnote three.  3Assuming that there be no sound reason for holding the expenditure to have been incurred in a trade or business*49  within the purview of section 23 (a) of the Revenue Act of 1934, is it deductible as taxes paid under subdivision 23 (c)?  This question does not appear to have been heretofore specifically determined.  Section 800 of the Revenue Act of 1926 imposes a stamp tax at a specified rate upon the issuance of original shares of corporate stock. That liability for the stamps on original issues is clearly placed upon the corporation admits of no doubt. In Re Consolidated Automatic Merchadising Corporation, 90 Fed. (2d) 598; certiorari denied, 302 U.S. 727; Raybestos-Manhattan Co. v. United States, 296 U.S. 60. Is the transferee also liable?  In the case of Magruder v. Supplee, 316 U.S. 394, the Supreme Court said:The guiding principle for determining whether a payment satisfying a tax liability is a "tax paid" within the meaning of section 23 (c) is furnished by the applicable Treasury regulation, which states that "In general taxes are deductible only by the person upon whom they are imposed." See Colston v. Burnet, 59 Fed. (2d) 867;*50 Small v. Commissioner, 27 B. T. A. 1219; Paul, Selected Studies in Federal Taxation, Second Series, p. 24 * * *.In Raybestos-Manhattan Co. v. United States, supra, at page 61, it is said that "Section 800 imposes liability for the tax upon the transferor, the transferee and the corporation whose stock is transferred."Treasury Regulations 71, article 88, relating to stamp taxes on documents imposed by the Revenue Acts of 1926 and 1928, provides:Art. 88. Parties to taxable instrument liable.  -- Both parties to a taxable instrument are responsible to the Government for affixing and canceling stamps in the *1035  required amount.  The law does not prohibit parties in interest from entering into an agreement as to which of them shall actually pay the same.We think the Treasury regulation is consistent with the provisions of section 800 of the Revenue Act. The petitioner actually paid the purchase price of the required revenue stamps on the issuance to her of the capital stock. Under the revenue act she was equally liable with the corporation to affix the stamps. She has not paid a tax which the statute*51  imposes upon another, but has discharged her own liability.  See George A. Neracher, 32 B. T. A. 236. The fact that it is customary for a corporation, upon the original issuance of its shares, to purchase the stamps which are required by the act to be affixed to the books of the corporation, does not affect the rule of liability as fixed by the revenue act. We hold that the petitioner was entitled to deduct the sum of $ 1,201.20 paid by her in 1934 for revenue stamps required on the issuance of the shares of the King Ranch Corporation, as taxes paid under section 23 (c) of the revenue act.Decision will be entered under Rule 50.  Footnotes1. Sec. 117 (a), Revenue Act of 1934.↩2. Sec. 23 (e) (2) and sec. 23 (k), Revenue Act of 1934.↩3. Sec. 800, Revenue Act of 1926, Title VIII; and schedule A, Stamp Taxes, sec. 2; sec. 23 (a) and (c), Revenue Act of 1934.↩