Court Opinion

ID: 9472251
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:54:21.340826+00
Date Added: 2024-06-11T17:42:49.871261
License: Public Domain

HARRISON L. WINTER, Chief Judge,
concurring in part and dissenting in part:
Believing that what the taxpayer did rather than what he claims that he intended to do should govern the tax consequences of a business transaction, see Lynch v. Commissioner, 273 F.2d 867, 872 (2 Cir.1959), I respectfully dissent from that portion of the majority opinion dealing with the taxpayer’s ability to claim an ordinary rather than a capital loss. I would affirm the Tax Court’s imposition of liability for taxes arising from the taxpayer’s mischaracterization of his losses. I agree with the majority’s conclusion that the penalties imposed below for failure to timely file a return must be reversed and concur in that portion of the opinion.
I.
It is clear to me that, regardless of his initial beliefs or intentions, the taxpayer actually acquired an option to purchase capital assets. By agreement with Caveness made April 19, 1976, taxpayer acquired a one-half interest in a purported option obtained by Caveness to purchase land from Finch Properties, Inc. Of course, Caveness had no option to purchase land. He may have had an option to purchase various assets of Finch Properties, but in any event there is no dispute that on May 24, 1976, Caveness did obtain a formal written option for the purchase of stock, a note, a mortgage, and other contractual rights from Finch Properties. It is also *141beyond dispute that the only consideration ever paid for the May 24, 1976, option came from the taxpayer. That consideration included the five weekly installments of $7,000 pursuant to the initial agreements between Caveness and Ravenel and an additional payment of $7,000 from the taxpayer on May 26, 1976, two days after Caveness’ renegotiation with Finch Properties.1
II.
Under these circumstances, there can be little question that the taxpayer was the beneficial owner of at least a one-half interest in the option Caveness obtained on May 24 if the extent of ownership is governed by the April 19, 1976, agreement between Caveness and taxpayer, and possibly the entire option if the furnishing of the consideration is determinative. Under Virginia law, a purchase-money resulting trust arises where a person establishes that he paid the purchase price for property but legal title to the property was conveyed to another without expressly mentioning the existence of a trust on the face of the conveyance. Salyer v. Salyer, 216 Va. 521, 526, 219 S.E.2d 889, 893 (1975); Kellow v. Bumgardner, 196 Va. 247, 253, 83 S.E.2d 391, 395 (1954). The payor must establish that no gift or loan was intended only if there is direct or circumstantial evidence that a gift or loan was intended. Kellow, supra. In this case, there is no evidence whatever that the payments were gifts or loans to Caveness. On the contrary, the taxpayer contends that they were made for the express purpose of purchasing an interest in an option taxpayer believed Caveness possessed. Thus, taxpayer had an interest in the May 24, 1976, option even though he was not a party to it.
III.
The fact that the taxpayer believed that the May 24 option was different from what it was in reality does not affect his beneficial ownership even though his belief, if fraudulently induced by Caveness, might give rise to an additional claim against Caveness. Nor are the taxpayer’s rights affected by the fact that he made the payments pursuant to an agreement with Caveness expressly contemplating another type of option.
Taxpayer’s contention that he thought that he did not possess or have the power to exercise the option obtained by Caveness is belied by his explanation for why he failed to attempt to recover any of his money from Finch Properties. He testified:
... But an attempt to get my money back, no, because I thought I was paying option money. And if you don’t exercise an option, you lose your money. That’s what you pay for, is the right to go ahead with the deal. Otherwise you lose.
It is obvious from his own testimony that the taxpayer realized that he, alone or in conjunction with Caveness, had the right to exercise the May 24 option even though it was not the option taxpayer now claims he *142originally intended to purchase. As long as the taxpayer had the right to exercise the option to purchase capital assets, in fact he possessed that option. When he failed to exercise it, he incurred a capital loss rather than an ordinary loss. The taxpayer’s original intention to acquire a different type of option is irrelevant to the tax consequences of what actually occurred. The majority correctly notes in this regard that “[t]he primary focus is on the character of the property itself and the true substance of the overall transaction, rather than the form assigned to it by the parties.” I agree and cannot escape the conclusion that the true character of the taxpayer’s failure to exercise his option was a capital loss because there is no dispute that the option actually obtained was one for the purchase of capital assets.
IV.
If the taxpayer was defrauded in some way, the damages should properly be assessed against Caveness rather than the public purse. The taxpayer, for unexplained reasons, has chosen not to proceed against Caveness. The unfair result of the majority’s holding is to shift a portion of the loss to the public.

. I cannot join the majority in wholesale acceptance of the taxpayer’s version of these events. The majority concludes that taxpayer, a sophisticated developer for almost thirty years, was defrauded by his long-time associate Charles Caveness. Caveness apparently misrepresented the nature of an option he had obtained from Finch Properties, characterizing it to be one for the purchase of land rather than an option to purchase various capital assets. Taxpayer paid a total of $35,000 (five weekly installments of $7,000) to Finch before even looking at the agreement Caveness had entered into. When the taxpayer finally did look at that agreement and found that it did not provide for an option to purchase land, he presumably "sent Caveness back to Finch to secure such an agreement.” Caveness obtained another agreement on May 24, 1976. Subsequently, again without looking at the new agreement, the taxpayer paid an additional $7,000 to Finch Properties. To make the situation even more curious, the taxpayer has never attempted to recover any of these funds from either Finch Properties or Caveness. Under these circumstances, I am unwilling to accept the majority's characterization that the record "clearly shows” that the taxpayer was an unwitting victim in the machinations of his “long-time business associate and trusted friend” Caveness.