Court Opinion

ID: 4608706
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:43:13.541804+00
Date Added: 2024-06-11T07:53:44.971746
License: Public Domain

M. L. LEVY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Levy v. CommissionerDocket No. 29984.United States Board of Tax Appeals19 B.T.A. 605; 1930 BTA LEXIS 2365; April 16, 1930, Promulgated *2365  Transfer of shares of stock by petitioner to his wife held to constitute a bona fide gift, and dividends subsequently paid on such stock held not taxable to petitioner.  George Roscoe Davis, Esq., and H. Kennedy McCook, Esq., for the petitioner.  Philip M. Clark, Esq., for the respondent.  ARUNDELL*605  The petitioner alleges that the respondent, in determining a deficiency of $3,811.12 in income tax for the year 1922, erred in increasing his income by the amount of dividends paid on certain stock held by his wife.  FINDINGS OF FACT.  In December, 1899, the petitioner, a resident of San Francisco, Calif., organized M. L. Levy & Co., a corporation, to engage in the wholesale jewelry business.  From January 6, 1911, until the dissolution of the corporation in January, 1923, all of its outstanding stock of 505 shares, with the exception of 3 qualifying shares, was owned by the petitioner and his wife, Rose Levy, in equal proportions.  Of the 251 shares owned by Rose Levy, 100 were issued to her at the time of the corporation's organization and the balance was subsequently given to her by the petitioner.  M. L. Levy & Co. did practically*2366  no business from 1906 until January, 1923, when it lost its charter because of its failure to pay the state franchise tax.  In 1922 and for several years prior thereto it did not keep any books.  During that period the petitioner maintained a set of books.  His bank account was kept under the name of M. L. Levy & Co.In 1903 the petitioner organized Voss & Rich, Inc., under the laws of California, to engage in the retail jewelry business and to serve *606  as an outlet for the business of M. L. Levy & Co.  Of the 200 shares of stock the corporation issued at the time of its organization, 196 were issued to the petitioner for $10,000 paid by M. L. Levy & Co., and substantial credit with M. L. Levy & Co. for merchandise, and the remaining shares were issued to other persons to qualify them as directors.  On January 1, 1922, the petitioner held 120 shares of the capital stock of Voss & Rich, Inc., and O. C. Voss and A. M. Rich, a brother of Rose Levy, held 40 shares each.  On January 5, 1922, Voss & Rich, Inc., issued in favor of Rose Levy, in lieu of certificates held by the petitioner for a like number of shares, certificate No. 29, for 58 shares of its stock.  Rose Levy*2367  receipted for the certificate on the stub of the stock book and received it on the date of its issue.  The petitioner's wife did not give any consideration for the stock transferred to her.  At the time the transfer was made she was not indebted to him for any amount of money.  At the time of this transfer the petitioner was not contemplating the sale of his stock in Voss & Rich, Inc., to Voss and Rich.  On March 31, 1922, and August 10, 1922, there were paid on the stock issued in favor of Rose Levy, dividends of $7,250 and $16,605.40, respectively, the latter dividend being at the rate of $286.30 per share.  The dividend checks were made payable to Rose Levy, and after being endorsed by her, were delivered to the petitioner with a request that their proceeds be invested for her.  The checks were deposited in a bank to the credit of M. L. Levy & Co., and their amounts were credited to Rose Levy's account on the petitioner's books on March 31, 1922, and as of August 9, 1922, respectively.  The books of the petitioner did not have an account with Rose Levy until March, 1922.  In August, 1922, the petitioner and his wife sold all of their stock in Voss & Rich, Inc., to Voss and Rich*2368  for $60,000.  Of the sales price, $10,484.45 was paid in cash, and coupons of an undisclosed character and amount, and the balance in United States securities and savings deposits.  Rose Levy participated in some of the negotiations for the sale and was present when the sale was closed.  On August 11, 1922, the petitioner credited to the account of his wife on his books the sum of $29,000, an amount representing her share of the selling price of all of the stock.  One of the reasons for making the entry was to have a record of what part of the sales price belonged to Rose Levy.  One of the provisions of the sale was that the securities and savings-deposit credits would be held until after Christmas, 1922, so as to permit the purchasers of the stock to redeem such property.  During the period that the option given the purchasers was in effect, the securities and savings-account deposit books were kept in a *607  safe-deposit box accessible at all times to both the petitioner and his wife.  The purchasers having failed to exercise the option given them, on December 30, 1922, the petitioner and his wife, after the former had first credited the latter's account with $1,388.06 for*2369  interest to that date on the amounts previously placed to her credit, made an accounting for the sale and other transactions.  Under this accounting Rose Levy received securities in the amount of $54,000, leaving a credit balance in her account with the petitioner of $243.06.  The securities delivered to Rose Levy under the transaction were enclosed in an envelope with her name on it and placed in a safe-deposit box for which she had a key and to which she had access at all times.  During 1923 Rose Levy sold all of the securities so delivered to her with the possible exception of United States certificates amounting to $1,500, and invested the proceeds in notes secured by deeds of trust on real estate located in San Francisco.  Commencing January 1, 1923, and thereafter until sometime in 1925, Rose Levy maintained a set of books.  Entries made in the books on January 1, 1923, show assets of $55,287.18, consisting of the following items: certificates, $54,000; M. L. Levy, $243.46; Union Trust Co., $562.99, and Hibernia Bank, $480.73.  The books also contain, among other entries, entries under an account designated "U.S. Certificates," showing the dates in 1923 and 1924 on which the*2370  securities she received on the sale of the Voss & Rich, Inc., stock were sold and the proceeds thereof; amounts due from and owing to petitioner; a capital account, and entries for interest payments on loans made from the proceeds of the sale of securities.  In his examination of the returns filed by the petitioner and his wife for 1922 the respondent concluded that the former had not made a valid gift of the Voss & Rich, Inc., stock to the latter, and, accordingly, taxed the petitioner on the dividends paid in 1922 on the stock.  OPINION.  ARUNDELL: The question of whether the dividends in controversy are income of the petitioner turns on whether he made a valid gift of the stock to his wife prior to the time the distributions were made.  The contention of the respondent is that the transfer was not a bona fide and valid gift for income-tax purposes.  Section 1146 of the Civil Code of California defines a gift as "* * * a transfer of personal property, made voluntarily, and without any consideration." The essential elements of a gift are an intention on the part of the donor to make it, an actual or constructive delivery of the subject matter of the gift, and an acceptance*2371  thereof by the donee.  ; ; ; . See also *608 Allen-West Commission Co. v. Grumbles, 129, Fed. 287; ; and . The evidence clearly shows the petitioner's intention to make a gift of the stock.  At the time of the transfer the donee was not indebted to the petitioner for any amount of money and she did not pay him anything for the stock.  In their depositions introduced in evidence, both the petitioner and his wife referred to the transaction a number of times as a gift, and testified that the only consideration given for the stock was "love and affection." The petitioner also testified he gave the stock to his wife in order "to crystallize the former gift I had given her in M. L. Levy & Company." The delivery of the stock and its acceptance by the donee have also been established.  The donee receipted for the stock, and actually received it, on January 5, 1922, the date of its issue.  Thereafter, in March, 1922, and August, *2372  1922, she received dividends on the stock, indorsed the checks issued in payment thereof, and delivered them to the petitioner with the request that he invest the proceeds for her.  She participated in the negotiations conducted for the sale of her own and the petitioner's stock to Voss and Rich and was present in August, 1922, when the deal made was closed.  In due course she received her proportion of the selling price of all of the stock sold and thereafter in 1923, sold the securities she received in the sale and invested the proceeds for her account.  All of this was done in the presence or with the knowledge of the petitioner.  Nor is there any evidence of record to establish that the petitioner exercised any dominion or control over the stock after its delivery and acceptance by the donee.  Everything points to the fact that the transfer was unconditional.  The facts, in our opinion, lead to the conclusion that the petitioner made a valid gift of the Voss & Rich, Inc., stock to his wife in January, 1922.  The dividends paid on such stock to Mrs. Levy in March and August, 1922, constituted income to her and it was error for respondent to tax the same to petitioner.  Decision*2373  will be entered under Rule 50.