Court Opinion

ID: 9650400
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:35:12.390232+00
Date Added: 2024-06-11T18:12:21.021951
License: Public Domain

JOHNSEN, Circuit Judge
(dissenting in part).
I agree with the majority that there was no such corporate reorganization here, as would entitle respondent to the benefit of the taxable basis or value of the hotel property in the hands of the previous owner. I am unable to agree, however, that the Board of Tax Appeals’ decision may nevertheless be affirmed, because the evidence in the record indicates that the actual market value of the property at the time of the foreclosure sale was $650,000.
What the evidence in this proceeding may indicate the value of the property to have been in 1933 seems to me irrelevant to the real inquiry. The controlling ques-*98tiori, as I view it, is, what value was established upon the property for tax purposes, between the Commissioner and the bondholders, at the time they acquired title in the foreclosure proceedings.
Since obligations of the debtor were applied to the bid price of the property, the bondholders were required, under the Treasury Regulation set out in the majority opinion, to measure, during the then current tax year, the gain or loss which had resulted to them from the foreclosure purchase. This meant that the fair market value of the property had to be determined and established at that time. Presumptively, as to both the bondholders and the Commissioner, this value was the amount for which the property had been bid in. But neither the bondholders nor the Commissioner was conclusively bound by that figure, in the establishment of the valhe. Each was at liberty, in settling the question of tax liability, or the right to any loss deduction by reason of the purchase, to produce “clear and convincing evidence to the contrary.” This right, however, had application only to a direct issue between the bondholders and the Commissioner on that question, and not to an inquiry in a collateral proceeding with the transferee, such as is here involved.
On the record before us, and under sections 112(b) (5) and 113(a) (8) of the Revenue Acts of 1932 and 1936, respondent clearly took the property on the same tax basis as the bondholders held it at the time of the conveyance. In the absence of any proof that a different basis was established by the bondholders for their 1933 tax liability, I think the only deduction permissible from the record is that the amount of the bid was allowed at that time to fix the value of the property for future tax purposes. Under the Treasury Regulations, the bid price was presumed. to represent the fair market value of the property. In fairness, however, if some different tax basis was actually agreed upon between the Commissioner and the bondholders, I think the way should be left open to respondent to show this fact before the Board of Tax Appeals.
I do not regard the fact that the bondholders were willing to have bid $650,000, if necessary, in order to obtain the property, as of any significance, since there was clearly a selfish reason why this was not done. It would have required an additional cash advance on their part of approximately $15,000 in foreclosure proceeds, for distribution to the bondholders who were not parties to the depositary agreement.
The Board of Tax Appeals disposed of the case solely on the theory of a corporate reorganization. The cause should be remanded to it, for a determination of the basis on which the bondholders established thé market value of the property for tax purposes in 1933, and of respondent’s resulting tax liability by reason thereof.