Court Opinion

ID: 4620015
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:41:47.468707+00
Date Added: 2024-06-11T07:55:44.901480
License: Public Domain

PAUL AKERS BOWDEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bowden v. CommissionerDocket No. 54923.United States Board of Tax Appeals26 B.T.A. 1410; 1932 BTA LEXIS 1147; October 31, 1932, Promulgated *1147 Held, that dividends paid to the petitioner's wife upon corporation stock standing in her name and subsequently paid to him as credits upon a promissory note given to him by the wife, in payment for said stocks, in the circumstances shown, are not properly a part of his taxable income.  J. Richard Bowden, Esq., for the petitioner.  Bernard D. Hathcock, Esq., for the respondent.  LANSDON *1410  This proceeding seeks to review the action of the respondent in adding to the petitioner's reported taxable income for 1928, the sum of $43,968 paid to petitioner's wife in that year as dividends upon corporation stock held by her, which is the basis of the tax deficiency of $6,667.39 asserted.  FINDINGS OF FACT.  The petitioner is a resident of Thomson, Georgia, a municipality of about 2,000 inhabitants.  Sometime about 1919, with other citizens of Thomson, he organized the Thomson Light and Water Company, a Georgia corporation, for the purpose of supplying the town with water and electric lights.  This corporation was not financially successful.  Sometime prior to 1927, the petitioner learned that the electric light and power franchise, which the*1148  corporation owned, could be sold to a foreign power company at a price that would enable the corporation to make a substantial return of capital to the stockholders.  In order to secure control of the corporation and assure the carrying out of any contract of sale he might negotiate for said franchise, the petitioner secretly purchased 450 shares of the capital stock of the Thomson Light and Water Company, paying $100 a share therefor.  After purchase of such shares he, on May 25, 1928, transferred them all to his wife through a single certificate which he directed to be issued to her by the secretary of the corporation.  A few days following this transfer the petitioner's wife executed and delivered to him her promissory note, due one day after date, for the sum of $45,000, that being the amount paid by him for the stock.  Sometime in the spring of 1928, prior to, or at least near the dates of purchase and transfer of the stock, the Thomson Light and Water Company sold its electric light and power franchise for the gross sum of $115,000.  An informal disbursement was made of $80,500 of such proceeds ratably among the stockholders of the corporation, *1411  in which the wife*1149  of petitioner received the sum of $43,968 in virtue of her ownership of 450 shares of stock transferred to her by petitioner.  Of the amount received the petitioner's wife paid to him $40,590 on June 16, 1928, and $2,706 on December 28, 1928, for which he gave her credits on her promissory note.  In reporting his income for 1928 the petitioner omitted from his returns the amounts received from his wife, as aforesaid, and the respondent, in auditing said return, has added them to petitioner's taxable income for that year, upon the theory that petitioner, and not his wife, was the owner of the stock at the time the corporate dividends were paid.  OPINION.  LANSDON: As against the respondent's contention the petitioner has filed a lengthy petition, containing many assignments of error which he alleges the respondent committed in his determination of the tax.  The real and only point at issue, however, relates to the ownership of the corporate stock which petitioner bought and caused to be transferred to his wife, as hereinbefore described.  The respondent contends that the petitioner was the real owner of that stock when the dividends were declared and the owner in law of the dividends*1150  paid to his wife.  The petitioner claims that he bought the stock for his wife in accordance with prearranged plans pursuant to which he caused the same to be transferred to her and that he was at all times acting as the agent of his wife, and that the promissory note given to him by her following the issuance of the stock certificate to her was to evidence his expenditures in such connection, for future accounting between them.  Both parties to this appeal have argued a number of collateral issues which, in the view we take of the law which must control our decision, need not be discussed in this opinion.  The only person who testified at the hearing was the petitioner, who gave his version of the transaction as above stated.  In connection with his testimony the petitioner put in evidence the stock certificate issued directly to his wife for the 450 shares of stock and her promissory note for the sum of $45,000, with the credits shown.  Without going into the involved recitals of the petitioner's story, or discussing his motives in doing what he did with the stock; or his exact status while doing it, we think the record before us shows that he succeeded in vesting the legal title*1151  to the stock in his wife and that her ownership of it at the time the dividends were paid was complete and unassailable.  In this connection we consider it immaterial whether, in the first instance, the petitioner purchased the several shares of stock for himself, or for his wife as her agent.  The certificate, being the sole muniment of title to the stock when *1412  issued to her by the secretary of the corporation, made her a stockholder and the only person, respecting this particular stock, to whom the corporation could legally pay the dividends. ; ; ; ; ; ; ; ; ; ; *1152 ; ; ; ; ; ; ; ; . Whether the transaction was a sale, or simply a gift from husband to wife, the substitution in stockholders became complete and title vested in her upon delivery and acceptance of the certificate.  ; ; . ; . From the facts shown it follows that the dividends here considered belonged to petitioner's wife at the time paid to her and that the respondent erred in including them in petitioner's taxable income.  The whole amount of income here disputed is $43,968.  The*1153  record accounts only for the two credits paid to petitioner on the note, which aggregate slightly less than that amount, and we are unable to say whether or not the respondent erred in respect to the excess.  We therefore hold that the respondent erred only in respect to so much of the amount in dispute as is shown to have been paid to the petitioner by his wife upon the note shown.  Decision will be entered under Rule 50.