Court Opinion

ID: 4609382
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:44:37.710963+00
Date Added: 2024-06-11T07:53:52.794323
License: Public Domain

TELFAIR STOCKTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Stockton v. CommissionerDocket No. 42708.United States Board of Tax Appeals26 B.T.A. 801; 1932 BTA LEXIS 1244; August 15, 1932, Promulgated *1244  Ownership of stock and profit on sale of stock determined.  H. A. Mihills, C.P.A., for the petitioner.  T. M. Mather, Esq., for the respondent.  MATTHEWS *801  This is a proceeding for the redetermination of deficiencies in income taxes for the year 1920 in the amount of $24,171.78, and for the year 1923 in the amount of $268.24.  The petitioner alleges that the respondent erred (1) in including in his taxable income for 1920 an alleged profit of $74,500 resulting from the exchange of stock of the Dennison Interlocking Tile Corporation for stock of the Columbus Brick & Tile Company; (2) in increasing his taxable income for the year 1923 by the amount of $15,000 representing dividends received from the Columbus Brick & Tile Company; and (3) in including in taxable net income for 1920 and 1923, as dividends, $1,644.50 and $1,647.50 received from the *802  Gamble & Stockton Company, which the petitioner contends was a return of capital inasmuch as the corporation had no surplus out of which to pay dividends.  The respondent has admitted that he erred with regard to this last assignment or error, and in accordance therewith these amounts should*1245  be excluded from the petitioner's income for those years.  This proceeding was consolidated for hearing with the case of the Columbus Brick & Tile Company, Docket No. 42707.  FINDINGS OF FACT.  The petitioner, Telfair Stockton, is an individual, a resident of Jacksonville, Florida.  He was the sole stockholder of the Telfair Stockton Company, hereinafter referred to as the Stockton Company, which was incorporated in 1909 or prior thereto under the laws of the State of Florida, with a total outstanding capital stock of $300,000.  This corporation was engaged principally in buying and selling real estate and making investments.  In April, 1916, Stockton and Robert Gamble each acquired at a cost of $25,500, $100,000 par value of the stock of the Dennison Interlocking Tile Company, hereinafter referred to as the Dennison Company.  The stock so acquired gave them a 51 per cent interest in the company.  The Dennison Company was engaged in promoting a patented interlocking tile and in running a sales agency for the promotion of this tile.  Stockton held his stock until March 2, 1920, when he exchanged it for 1,000 shares of stock of the Columbus Brick & Tile Company, hereinafter referred*1246  to as the Columbus Company.  The facts with regard to such exchange are fully set forth in our findings of fact in the case of , which was consolidated with this case for hearing, and the findings of fact in that case are incorporated herein by reference. The stock of the Columbus Company at the date of the exchange was worth par.  Stockton was the owner of the Columbus Company stock throughout the years involved in this proceeding.  Dividends received on this stock amounted to $15,000 in 1923.  Stockton did not keep any separate records of his personal transactions, but some of such transactions were recorded on the books of the Stockton Company.  OPINION.  MATTHEWS: The petitioner contends that the stock of the Dennison Company exchanged in 1920 for stock of the Columbus Company did not belong to him, but to the Stockton Company, and that the profit, if any, derived upon such exchange was taxable to the company *803  and not to him, and that the dividends received on the stock of the Columbus Company in 1923 were for the same reason not taxable income to him.  The question of the ownership of the stock is one*1247  of fact, to be decided upon consideration of all the evidence introduced.  This evidence shows, on the one hand, that the stock was issued in the name of the petitioner, voted by him, and dividend checks were issued in his name.  Upon the organization of the Columbus Company he treated this Dennison stock as if it were his own and exchanged it for stock of the Columbus Company issued in his name.  All the evidence shows that at this time he acted as if he were the owner of the stock.  In connection with an appraisal made at the request of the revenue agent with respect to the value of the property transferred to the Columbus Company, Stockton executed an affidavit in 1925 in which he stated that he was the owner of the stock.  In 1929, in connection with the reorganization, he made an endorsement on the certificate of the Columbus Company stock in which he referred to it as his stock, although he testified that he had endorsed this stock in blank in 1922 and had turned it over to the Stockton Company.  On the other hand, we have the evidence that the Stockton Company paid the note given to the bank for the money with which the Dennison stock was purchased, that the Dennison stock*1248  and that of the Columbus Company were entered on the books of the Stockton Company, and that dividends when received by the petitioner were turned over to the Stockton Company and entered in its dividend account.  However, in view of the fact that the petitioner used the books of the Stockton Company to record some of his personal transactions and that the dividend account in the Stockton Company's books also shows receipt of dividends on the Dennison stock on September 2, 1920, December 14, 1920, and March 5, 1921, which dates were all after the transfer of such stock to the Columbus Company, the entries on the books of the Stockton Company are not in any way conclusive as to ownership of the stock.  We are of the opinion that the petitioner has not overcome the prima facie correctness of the respondent's determination that the stock belonged to him.  See . The fact that he received the money from the corporation to pay for the stock does not necessarily make the stock the corporation's stock.  The evidence as to the reason for the corporation furnishing the money is not clear. *1249  It may well be that this was a loan to the petitioner from the corporation.  Nor does the fact that he turned the dividends over to the corporation after receiving them relieve him of tax liability thereon.  . It is clear, therefore, that any profit realized on the exchange of Dennison stock for Columbus Company stock in 1920 and the dividends *804  received from the Columbus Company stock in the amount of $15,000 in 1923 constitute taxable income to the petitioner in the respective years.  It remains to be seen, however, whether the petitioner as the owner of the Dennison stock realized any profit upon the exchange in 1920 of this stock for stock of the Columbus Company.  The respondent has determined that the petitioner realized a profit of $74,500, being the difference between the par value of the Columbus stock, $100,000, and the cost of the Dennison stock, $25,500.  We do not agree with the contention of the petitioner that this was an exchange in connection with a reorganization, merger or consolidation.  It is clear that the Columbus Company was an entirely new corporation and not a party to a reorganization of any*1250  old corporation.  Upon incorporation it issued its entire capital stock to three individuals for property, notes and other stock.  The basis for determining the gain or loss upon the exchange in 1920 is, therefore, the fair market value of the Columbus Company stock at the date of exchange.  Sec. 202(a) and (b), Revenue Act of 1918.  Respondent determined this value to be the par value of the stock.  The evidence introduced by petitioner not only does not overcome this determination, but, on the showing made of the intrinsic value of the assets back of the stock, tends to confirm it.  Although the Dennison stock could not be included in invested capital at more than $51,000, the cost to prior owners, the stock had been paying and continued to pay a dividend in excess of 6 per cent.  The plant of the Shepherd Brothers was valued by the Columbus Company and by Stockton and Gamble at $600,000, and was so set up on the books of the company.  Depreciation and depletion were claimed, and the total amounts finally allowed by respondent were based on a value in excess of the value at which the plant could be included in invested capital.  There is no evidence of any sales of the Columbus*1251  Company stock, but it can not be said that it has no fair market value, because such value may be established by other factors.  See , and cases cited therein.  The determination of the respondent on this point is approved.  Judgment will be entered under Rule 50.