Court Opinion

ID: 4614337
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:29:58.811289+00
Date Added: 2024-06-11T07:54:46.207429
License: Public Domain

C. A. BRYAN AND EUNICE MUNN BRYAN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  L. J. BRYAN AND EUPHA POLK BRYAN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bryan v. CommissionerDocket Nos. 24036, 24037.United States Board of Tax Appeals19 B.T.A. 111; 1930 BTA LEXIS 2454; February 28, 1930, Promulgated *2454  1.  Where the Commissioner sent by registered mail one deficiency letter to the proper address to a husband and wife who had made separate returns and therein computed the deficiencies separately and then added them together, and where such letter was received by both persons, and where both appealed to the Board and tried their cases on the merits, held that the Board has jurisdiction of both appeals.  2.  Where the vendors, in a community property State, entered into a binding contract of sale of an oil lease, and after receiving part of the consideration and delivering possession, gave the property to their wives, who then conveyed to the contract vendee, the gifts are invalid to defeat the tax.  3.  The gain is taxable to the communities and not to the wives as separate property, and is determined by the difference between the cost to the communities and the proceeds of the sale, less any proper deduction of expenses.  4.  Fraud penalty should not be assessed against the taxpayers in this case.  5.  The value of certain stock determined.  Harry C. Weeks, Esq., for the petitioners.  L. A. Luce, Esq., and R. B. Cannon, Esq., for the respondent.  *2455  BLACK *112  These proceedings were by order duly entered consolidated for hearing and decision and involve the following deficiencies in income tax and penalties.  In the proceeding of C. A. Bryan and Eunice Munn Bryan the deficiencies and penalties are as follows: for the year 1919 a deficiency of $13,637.14 and a penalty under section 250(b) of the Revenue Act of 1918 of $6,818.57; for the year 1920 a deficiency of $139,642.63, and for the year 1921 a deficiency of $6,184.34.  In the proceeding of L. J. Bryan and Eupha Polk Bryan, the deficiencies and penalties are as follows: for the year 1919 a deficiency of $13,261.96 and a penalty under section 250(b) of the Revenue Act of 1918 of $6,630.98; for 1920 a deficiency of $133,875.33 and for the year 1921 a deficiency of $7,620.  The petitioners allege (1) that respondent did not possess authority to assess and collect by administrative proceeding the 50 per cent penalty provided by section 250(b) of the Revenue Act of 1918; (2) that respondent erred in determining that petitioners had filed false and fraudulent returns with intent to evade income tax or that any one of petitioners had made a false and fraudulent*2456  understatement of income tax; (3) that respondent erred in including as community income of each of said communities for the year 1919 the sum of $73,694.84 as profits arising from the sale of certain oil lease properties to the Livingston Oil Corporation; (4) that respondent erred in including as community income of each of said communities for the year 1920 the sum of $96,398.48, and for the year 1921 the sum of $37,182.42 as deferred payments received in said years respectively on sale to the Livingston Oil Corporation; (5) that respondent erred in including in gross income of petitioners C. A. Bryan and Eunice Munn Bryan for the year 1920 the sum of $189,263.71 and the sum of $17,856.25 as taxable income from receipt of stock in the Bryan Oil Corporation; (6) that respondent erred in including in gross income of petitioners L. J. Bryan and Eupha Polk Bryan for the year 1920 the sum of $189,263.71 and the sum of $4,000 from receipt of stock in the Bryan Oil Corporation; and (7) that respondent erred in disallowing as an expense the sum of $2,500 paid by petitioner, Eunice Munn Bryan, and the sum of $2,500 paid by petitioner, Eupha Polk Bryan, as attorneys' fees for services rendered*2457  in connection with their respective income-tax returns.  At the hearing counsel for petitioners suggested that the Board had no jurisdiction over the tax liabilities of Eunice Munn Bryan and Eupha Polk Bryan, on the ground that no deficiency letter had been mailed to either of them.  Respondent at the hearing filed an amended answer in which he affirmatively asserted *113  that petitioners C. A. Bryan and L. J. Bryan had consummated their sale to the Livingston Oil Corporation prior to the date of their attempted assignments of their interests in said property to their respective wives and that said assignments of said petitioners to their respective wives were not bona fide and were made with intent to evade their income tax, and, further, that the petitioners and each of them filed false and fraudulent returns for the year 1919 with intent to evade Federal income tax, and he prayed that the fraud penalty which had been proposed by him in the deficiency letters be allowed.  FINDINGS OF FACT.  At all times herein mentioned petitioners C. A. Bryan and Eunice Munn Bryan were husband and wife, living together and residents of the State of Texas, and petitioners L. J. Bryan*2458  and Eupha Polk Bryan were husband and wife, living together and residents of the State of Texas.  On May 9, 1919, Henry Hobbs, of Wichita Falls, Tex., leased to L. J. Bryan and C. A. Bryan, of the same city and State, the south 30 acres of the southeast one-fourth of that certain 160-acre tract of land out of the southwest corner of survey or block No. 97 of the Red River Valley Land Subdivision.  As a consideration for said lease, the Bryans agreed to pay to Hobbs the full one-half of all the oil produced thereon, after the payment of the one-eighth royalty to the owner of the land.  Also, the Bryans agreed within 78 days to begin the actual drilling of eight wells for oil and gas upon said lease and to prosecute the drilling thereof with due diligence to the sand in which paying oil is found in the Texas Chief Well located near the above described lease.  In the event of the failure of said Bryans to begin the actual drilling of said eight wells within said time, the lease was to be forfeited.  The above contract was acknowledged by Hobbs on June 3, 1919, was filed for record July 7, 1919, and was recorded July 30, 1919.  On July 5, 1919, petitioners C. A. Bryan and L. J. Bryan*2459  and the Livingston Oil Corporation entered into a contract, the substance of which was that the Bryan brothers agreed to sell, transfer and assign to the Livingston Oil Corporation their one-half interest in the Hobbs 30-acre lease for the sum of $475,000, of which $25,000 was to be paid in cash, $50,000 in 60 days, $50,000 in 90 days, $25,000 in 120 days, and the balance of $325,000 was to be paid from oil produced from the property.  The cash was to be paid and notes for the deferred payments of $125,000 were to be delivered, and the contract was to become binding when the abstract of title was approved in writing by counsel for the Livingston Oil Corporation.  It was further provided that the Livingston Oil Corporation assumed all *114  of the obligations to be performed by the Bryan brothers under their contract of assignment from Hobbs relative to the drilling of wells and payment of royalties and other charges.  A formal assignment of the Hobbs lease was attached to and made a part of the contract.  It was agreed that the Bryan brothers should assist in obtaining necessary supplies and rigs to start drilling in time to comply with the requirements of the Hobbs contract. *2460  Other provisions referred to matters not material to this controversy.  On July 5, 1919, Herman Livingston, one of the officers of the Livingston Oil Corporation, drew his draft on said corporation at its office at Tulsa, Okla., payable to the petitioner C. A. Bryan for $25,000.  This draft was endorsed by petitioner C. A. Bryan and was further endorsed on July 5, 1919, by the American National Bank of Wichita Falls, Tex., and forwarded by said bank for collection to the Exchange National Blank of Tulsa, Okla., and there paid on July 9, 1919.  On the same date, July 9, 1919, the American National Bank credited $10,000 of said amount of $25,000 to C. A. Bryan and L. J. Bryan and on the same date issued its cashier's check payable to Bryan Brothers for $15,000, which was collected by C. A. Bryan and L. J. Bryan on July 10, 1919.  On July 10, 1919, the title to the Bryan's interest in the lease was approved in writing by the attorney of the Livingston Oil Corporation.  About this time petitioners C. A. Bryan and L. J. Bryan had under consideration the transfer by gift of their interest in the Hobbs lease to their respective wives for the purpose of lessening their income-tax liability*2461  on the transaction.  They also had other reasons for taking such contemplated action, one of which was certain controversies which had arisen with the Imperial Petroleum Co.  The Imperial Petroleum Co. was threatening to sue the Bryan brothers on the ground that the Hobbs lease of 30 acres should have been taken to the Imperial Petroleum Co. and not to C. A. and L. J. Bryan.  Since the time fast expiring within which the drilling of the wells mentioned in the Hobbs contract should be begun, and since by reason of the excitement over new discoveries and numerous new drilling operations then being begun in the oil field it was difficult to procure drilling apparatus, C. A. Bryan and L. J. Bryan, acting under their agreement with the Livingston Oil Corporation to assist in drilling the wells, began securing drilling outfits and having them moved upon the leased property.  The drilling of the first well began on July 14, 1919, which was prior to the alleged gift by the Bryans to their wives of the Hobbs lease, and the drilling of the other wells began about the same time, or a little later.  C. A. Bryan and L. J. Bryan used a large part of the first payment of $25,000 in conducting *2462 *115  these operations, for which they were afterwards reimbursed by the Livingston Oil Corporation.  No oil was struck until subsequent to July 25, 1919.  Without informing their respective wives of the existence of the contract of July 5, 1919, between them and the Livingston Oil Corporation, petitioners C. A. Bryan and L. J. Bryan assigned to their respective wives their respective interests in the oil leases already sold to the Livingston Oil Corporation.  The assignment of C. A. Bryan to his wife reads: KNOW ALL MEN BY THESE PRESENTS: That I, C. A. Bryan, of the County of Wichita, State of Texas, for the sum of One ($1.00) dollar and other valuable considerations to me in cash paid by my wife, Eunice Munn Bryan, receipt of which is hereby acknowledged, and confessed, have bargained, sold, transferred and assigned, and by these presents do hereby bargain, sell, transfer and assign unto the said Eunice Munn Bryan, same to be held by her as her sole and separate property and estate, all of my undivided one fourth 1/4 interest in and to that certain oil and gas lease and leasehold estate in and to the following described property, situated in the County of Wichita, State of*2463  Texas, to-wit: (Here follows description of property.) The interests and estates hereby conveyed are conveyed subject to all of the conditions, obligations and agreements contained in said original lease and all of said assignments in so far as same pertains to the land above described, and said interests and estates are conveyed to the said Eunice Munn Bryan absolutely, as her separate property, with full power and authority, to use, manage, sell, control or dispose of in any way that she may see fit, subject only to the restrictions imposed by laws of Texas as to business transactions by married women.  TO HAVE AND TO HOLD the premises and estates above conveyed unto the said Eunice Munn Bryan, as her separate property and estate her heirs and assigns, for the full unexpired term of said lease, subject, however, to all the terms and conditions in said lease contained, and to the full terms and conditions above referred to.  Witness my hand, at Wichita Falls, Texas, this the 22nd day of July, A.D. 1919.  The above assignment was acknowledged by C. A. Bryan on July 25, 1919, was filed for record August 4, 1919, and was recorded August 20, 1919.  By a similar writing dated July 22, 1919, acknowledged*2464  July 22, 1919, filed for record August 4, 1919, and recorded August 20, 1919, petitioner L. J. Bryan assigned and conveyed his interest in said lease to his wife, Eupha Polk Bryan.  The value of the Hobbs lease at the date of the alleged gift was $400,000 or $200,000 for each one-half interest.  On July 25, 1919, petitioners executed the following assignment to the Livingston Oil Corporation: That we, Eunice Munn Bryan, joined herein pro forma by my husband, C. A. Bryan, and Eupha Polk Bryan, joined herein pro forma by my husband, L. J. Bryan, for the sum of Ten ($10.00) Dollars and other good and valuable considerations to us in cash paid by the Livingston Oil Corporation, a corporation created and existing under and by virtue of the laws of the State of *116  Oklahoma, receipt of which is hereby acknowledged and confessed, as well as in consideration of the covenants and agreements hereinafter contained on the part of the said Livingston Oil Corporation, have bargained, sold, transferred and assigned, and by these presents do hereby bargain, sell, transfer and assign unto the said Livingston Oil Corporation all of our interest, same being an undivided one-half interest*2465  in and to that certain oil and gas lease executed by C. T. Taylor and wife to A. R. Calloway on March 19, 1917, and all of the leasehold interest and estate conveyed thereby in so far as same pertains to the following described land situated in the County of Wichita, State of Texas, to-wit: (Here follows description of property.) said oil and gas lease being duly recorded in the Deed Records of Wichita County, Texas, reference being hereby expressly made to said records for all of the terms and conditions thereof.  The said Livingston Oil Corporation hereby assumes and obligates itself to carry out, perform and fulfill all of the covenants, obligations, agreements and conditions contained in an assignment of said oil and gas lease, in so far as same pertains to the thirty acre tract above described, made by Henry Hobbs of Wichita Falls, Texas, on the 9th day of May, A.D. 1919, to L. J. Bryan and C. A. Bryan, which said assignment was filed for record in the office of the County Clerk of Wichita County, Texas, on July 7, 1919, and reference being hereby expressly made to said records for all of the terms and conditions thereof, and it is agreed and understood that the said Livingston*2466  Oil Corporation is entitled to all of the benefits accruing to said L. J. and C. A. Bryan or their assigns under and by virtue of said assignment.  As an additional consideration for this grant the said Livingston Oil Corporation hereby binds and obligates itself, its successors and assigns to deliver to the credit of the grantors herein in the pipe lines to which the wells to be drilled on the property above described may be connected seven-thirty-seconds (7/32nds) of all of the oil produced from said property free and clear of all expense of every kind and character, until grantors herein have received from this source the sum Three Hundred and Twenty-five Thousand ($325,000.00) Dollars, said oil to be sold by grantor herein for the best price obtainable, and all amounts received by them from this source to be applied to the liquidation of said Three Hundred and Twenty-five Thousand ($325,000.00) Dollars.  It is understood and agreed between the parties hereto that of said oil and the proceeds thereof so going to grantors one-half shall go to the said Eunice Munn Bryan and one-half to the said Eupha Polk Bryan, and that all of said oil so received by them, as well as all moneys*2467  and other things of value received by them by reason hereof go and belong to the respective separate estates of said Eunice Munn Bryan and of the said Eupha Polk Bryan.  TO HAVE AND TO HOLD the premises and estates above conveyed unto the said Livingston Oil Corporation, its successors and assigns for the full unexpired term of said original lease, subject, however, to all of the terms and conditions in said lease contained, and the terms and conditions of the assignment above referred to, as well as the terms and conditions of this instrument.  Witness our hands at Wichita Falls, Texas, this 24th day of July, A.D. 1919.  The only monetary consideration mentioned in this assignment is the sum of $10 in the first paragraph, and the additional consideration of $325,000 to be paid in oil, or its proceeds, yet in addition thereto the $25,000, which the Livingston Oil Corporation had *117  already paid C. A. Bryan and L. J. Bryan, was treated as a cash payment and as a further consideration the Livingston Oil Corporation delivered and paid its notes in the aggregate sum of $125,000, as provided in the original contract of July 5, 1919.  It does not appear to whom these notes*2468  were payable, but $50,000 of the proceeds thereof were used to settle litigation instituted by the Imperial Petroleum Co. because of alleged fraudulent actions of C. A. Bryan and L. J. Bryan, and $50,000 to pay off indebtedness of the Imperial Petroleum Co., for which the Bryan brothers were liable, and the balance of the proceeds of the notes were deposited to the accounts of the wives.  All other moneys payable under said assignment by the Livingston Oil Corporation, except the initial payment of $25,000, were collected and deposited in bank to the individual and separate credit of petitioners Eunice Munn Bryan and Eupha Polk Bryan, in equal parts.  By the permission of their wives, C. A. Bryan and L. J. Bryan each had the right to check on the bank account of his respective wife and each did so.  C. A. Bryan at no time borrowed money from his wife and the proceeds, except as above stated, of the sale to the Livingston Oil Corporation, were largely invested in real estate, other property and loans made for her separate use.  The money deposited to the credit of Eupha Polk Bryan was thereafter to a large extent invested in real estate, other property, and in loans for her separate*2469  use.  L. J. Bryan and Eupha Polk Bryan borrowed and loaned to each other and at the date of the hearing Eupha Polk Bryan was indebted to her husband in the approximate amount of $20,000.  At a time not shown C. A. Bryan and L. J. Bryan reimbursed their respective wives for the initial payment of $25,000 used by them as above set forth.  Subsequent to certain proceedings against petitioners and others by certain of the shareholders of the Imperial Petroleum Co., petitioners C. A. Bryan and L. J. Bryan determined to reorganize the affairs of the Imperial Petroleum Co. and to this end to organize a corporation under the laws of the State of Delaware, which should take over the assets and liabilities of the Imperial Petroleum Co.  With these ends in view, these petitioners entered into a contract, the substance of which was as follows: The Bryans agreed with the trustees of the Imperial Petroleum Co., which was a business trust, that the Bryans would organize a Delaware corporation, for the purpose of engaging in the oil business, with a capital stock of $1,500,000 of the par value of $1 per share.  Seven hundred and fifty-one thousand dollars of stock was to be issued as fully paid*2470  up, and seven hundred and forty-nine thousand dollars was to be retained in the treasury to be issued *118  for other purposes, when required.  The $751,000 of paid-up stock was to be paid for by the transfer to the new Delaware corporation (hereinafter called Bryan Oil Corporation) of all the assets of the Imperial Petroleum Co. at an agreed valuation of $368,972.58, which was the par value of its outstanding capital stock, and the balance of $382,027.42, by a transfer to it of the Bryans' interest in two oil and gas leases, viz, a seven-sixteenths interest in and to an oil and gas lease on 40 acres, more or less, more fully described as block No. 6 of the W. D. Kynerd Subdivision of the H. & G. M. Rr. Co. Survey No. 2, Archer County, Texas.  Also, an undivided one-half interest in an oil and gas lease on 40 acres of land, being the west half of lot No. 7, and the west half of lot No. 8, of Munger's Subdivision of block No. 24 of the J. A. Kemp Wichita Valley farm lands, in Wichita County, Taxas.  Holders of Imperial stock were to have three options, as follows: (1) exchange Imperial stock for Bryan Oil Corporation stock par value for par value; (2) Bryans would buy Imperial*2471  stock at par, or (3) where Imperial stockholders exchanged their stock for Bryan stock and became dissatisfied, the Bryans would buy said stock at par under certain conditions.  The stockholders of the Imperial ratified the contract and in pursuance thereof, the trustees of the Imperial Petroleum Co. executed and delivered an assignment to C. A. Bryan and L. J. Bryan, conveying to them all of the assets of the Imperial Petroleum Co.  Thereafter, on April 10, 1920, petitioners C. A. Bryan and L. J. Bryan procured the incorporation under the laws of Delaware of the Bryan Oil Corporation with an authorized capital stock of $1,500,000 divided into 1,500,000 shares of the par value of $1 each.  The first meeting of the Bryan Oil Corporation was held April 24, 1920, when the Bryans submitted the above contract and assignment and offered to convey, transfer, and assign to the Bryan Oil Corporation all of the properties and rights acquired by them from the Imperial Petroleum Co. and their interests in the two leases above mentioned in consideration of the issuance to them of $751,000 of the capital stock of the Bryan Oil Corporation to be fully paid and nonassessable.  The corporation was*2472  to assume the obligations of the Bryans under the Imperial contract, and the liabilities of the Imperial Co., but the Bryans were to assign and deliver from their $751,000 of stock the stock to be exchanged for that of the Imperial shareholders in the Imperial.  Thereupon, resolutions were duly adopted by the board of directors reciting that in the opinion of the board the properties were necessary for the purposes of the company and were reasonably worth the price asked, and it was - *119  RESOLVED: By the Board of Directors of the Bryan Oil Corporation, that the proposal aforesaid be, and the same is, hereby accepted, and be it further resolved that the officers of the company be, and are, hereby authorized and instructed to issue and deliver to the said L. J. and C. A. Bryan the amount of capital stock of Bryan Oil Corporation above set forth, upon the transfer and assignment to Bryan Oil Corporation of the properties above referred to, and be it further resolved that said officers are hereby authorized and instructed to do each and everything necessary or proper to carry out the agreement evidenced by the proposal above set forth; this to include authority and instructions*2473  to execute such written contracts and obligations as may be necessary or proper.  At the same meeting a contract was entered into with J. W. Sibley & Co., of Detroit, Mich., and Robert S. Ogilvy, of Chicago, Ill., for the sale of stock in the Bryan Oil Corporation, by which the Bryan Oil Corporation employed Sibley & Co., and Ogilvy as brokers to sell its treasury stock.  It was provided that the brokers were to sell stock at the rate of $50,000 par value monthly and that no stock should ever be sold to net the Oil Corporation less than 85 cents on the dollar, and that the brokers should not receive as commission more than 30 per cent of the sale price of each share of stock sold, and in the event the price of stock was raised the limit of 30 per cent commission still applied.  All expenses were to be borne by the brokers.  J. W. Sibley & Co., of Detroit, Mich., in 1920 and 1921 sold 173,145 1/2 shares of the treasury stock of the Bryan Oil Corporation under said contract for a total consideration of $173,145.50, of which $24,266.32 was deducted as commission and $148,879.18 was paid to the corporation as the net proceeds of the stock sales.  R. S. Ogilvy in 1920 and 1921 sold*2474  11,814 shares of the treasury stock of the Bryan Oil Corporation for a total of $11,814, of which $1,504.76 was retained as commissions and $10,309.24 was paid to the corporation as net proceeds of said stock sales.  None of these sales was made upon the open market or upon any stock exchange.  Sibley & Co. and Ogilvy sold the stock through agents in small blocks and much of it in factory and farming districts far removed from the locality where the oil company was located.  Some of the shares were traded in for other stock, others were made upon an installment basis and all the sales were made to purchasers in the States of Illinois, Michigan, and Ohio, and upon personal solicitation.  On October 13, 1921, the executive committee of the board of directors of the Bryan Oil Corporation resolved that the selling price of the treasury stock should be increased to $1.50 per share.  Subsequent to the failure of Ogilvy and Sibley to sell the stock they had contracted to sell, petitioner L. J. Bryan attempted to sell part of his stock at 50 cents, and then at 25 cents per share, and failed to *120  find a purchaser.  The acquisition by the Bryan Oil Corporation of the assets of the*2475  Imperial Petroleum Co. was effective as of April 23, 1920.  The only assets acquired by the Bryan Oil Corporation, other than those acquired from the Imperial Petroleum Co. at the date of its organization, were the two leases contributed thereto by petitioners C. A. Bryan and L. J. Bryan, to wit, the Munger lease and the Kynerd lease, which had been acquired by the Bryans at a total aggregate cost of $3,500.  No oil was found on those properties and the fair market value of them at the date acquired by the Bryan Oil Corporation was $3,500.  The net fair market value of the assets of the Imperial Petroleum Co. at the date its assets were acquired by the Bryan Oil Corporation, was the sum of $368,972.58.  The fair market value of the stock of the Bryan Oil Corporation at the time such stock was acquired by petitioners was 49 1/2 cents per share.  In computing the taxable income of petitioners arising from the above transactions, respondent determined that the stock of the Bryan Oil Corporation was worth par, that is, $1 per share.  He further divided the stock of the Bryan Oil Corporation received by C. A. Bryan and L. J. Bryan into two parts, to wit, that which was received by them*2476  in exchange for their stock in the Imperial Petroleum Co., and the remainder of the stock received by them which he attributed solely to the leases contributed by them of a value of $3,500.  In the case of C. A. Bryan, his computation is as follows: Stock in Imperial Petroleum Co. exchanged for stock in Bryan Oil Corporation -  Stock received$89,281.25Stock held (par)$89,281.25Less stock dividend 191817,856.2571,425.00Gain17,856.25In the case of L. J. Bryan, he computed the tax as follows: Bryan Oil stock received$20,000.00Imperial stock owned$20,000.00Less stock dividend 19184,000.0016,000.00Gain - additional income4,000.00He further determined that L. J. Bryan and C. A. Bryan together received the further amount of 382,027.42 shares of stock of the Bryan Oil Corporation, which cost them $3,500, thus showing a gain of $378,527.42, of which one-half was attributed to L. J. Bryan and one-half to C. A. Bryan.  He further treated these amounts of income as community income and divided them between each husband and wife.  *121  The following, taken from the deficiency letter mailed*2477  to C. A. Bryan and wife, is typical of the other computations made against these petitioners and also against L. J. Bryan and wife for each of the years in question: 1919Net income reported:Husband$3,286.72Wife754.17Total net income reported4,040.89Net income corrected, community property basis, agent's report   May 5, 1924:   Husband$41,886.61Wife41,886.62Total taxable income83,773.23Less:Exemption2,000.00Income subject to normal tax81,773.23Tax at 4% on $4,000.00, husband160.00Tax at 4% on $4,000.00, wife160.00Tax at 8% on $36,886.61, husband2,950.93Tax at 8% on $36,886.62, wife2,950.93Surtax on husband's income, $41,886.61  3,768.46Surtax on wife's income, $41,886.62  3,768.46Total tax assessable13,758.78Tax previously assessed:Husband's return$91.47Wife's return30.17Total tax previously assessed121.64Deficiency in tax13,637.1450% penalty as provided by sec. 250(b) Revenue Act of 1918  6,818.57All the petitioners on their returns for the year 1919 give the same address, to wit, "Harrison-Everton Building, Wichita*2478  Falls, Texas." OPINION.  BLACK: Petitioners in their petitions and amended petitions asserted the errors set forth in our opening statement and numbered one to seven, inclusive.  They filed with their petitions the deficiency letters upon which such petitions were respectively based.  They alleged in the petitions the facts which they expected to prove with respect to their various contentions.  There is alleged in none of the petitions or amended petitions anything which would indicate that the Board does not possess jurisdiction to hear and determine the issues presented, nor is there anything in the evidence to show that *122  the Board does not have jurisdiction.  At the hearing counsel for the petitioners made the following statement: Mr. Weeks: Before proceeding with the trial, I want to make a suggestion of want of jurisdiction on the part of the Board over the tax liability of the wives in this case, upon the ground that there has been no deficiency letter sent to them.  Your Honor will see from the amended petitions that the deficiency it letter was addressed, respectively, to C. A. Bryan and wife and L. J. Bryan and wife, and in the calculations attached in*2479  the statement of the deficiency it is proposed in one lump sum, and upon the authority of the J. A. Staley case, it seems to me there is no deficiency which is covered by the Board's jurisdiction.  It will be perceived that two objections were made to the letters - first, that they were addressed to "C. A. Bryan and wife" and to "L. J. Bryan and wife," respectively, and, second, that these letters proposed a lump-sum deficiency against each husband and wife.  The letters were issued pursuant to section 274 of the Revenue Act of1926, the pertinent part of which reads: SEC. 274. (a) If in the case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail.  Within 60 days after such notice is mailed (not counting Sunday as the sixtieth day) the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency.  * * * It is first argued that instead of mailing two letters respondent should have mailed four letters - that is, one to each petitioner. *2480  It is not claimed that the letters were not sent by registered mail nor is it asserted that they were not mailed to the proper addresses.  In this connection it is to be noted that in their respective returns for the year 1919, the only returns filed in evidence, C. A. Bryan and his wife gave the same address, as also did L. J. Bryan and his wife Not only were the letters mailed to the proper addresses but they were actually received by the very persons to whom they were addressed and within the 60-day period all the addressees filed petitions before the Board seeking a review of the deficiencies therein asserted.  Petitioners rely on . We do not think that case is controlling in the instant case.  We hold that the deficiency letters sufficiently complied with the statute and that we have jurisdiction to hear these appeals.  There is no merit to the contention that the deficiency letters asserted a lump-sum deficiency against each husband and wife.  The deficiency letters clearly showed what deficiencies were asserted against each taxpayer and are a sufficient compliance with the statutes.  Cf. *2481 . *123  On the merits of the case it is contended by the respondent that the assignment by the Bryan brothers to their wives of their interests in the Hobbs lease was not made in good faith and was ineffectual for the purpose of avoiding taxation on the profit made in the acquisition and sale of the lease.  The facts in connection with this transaction have been fully stated in our foregoing findings of fact, and need not be repeated here.  It is clear to us that notwithstanding the methods used by the Bryans in transferring the Hobbs lease to their wives and they in turn, joined by their husbands pro forma, transferring it to the Livingston Oil Corporation, there was a profit of approximately $400,000 to the two marital communities, and this profit is taxable to the respective parties in the years when the respective payments were received.  The transfer by the Bryans to their wives was made after they had already entered into a binding contract to sell the lease to the Livingston Oil Corporation for a consideration of $475,000.  All the terms of sale had been agreed upon and $25,000 of*2482  the purchase price had been paid to the Bryan husbands.  The attorneys for the Livingston Oil Corporation had approved the title to the Hobbs lease in O. A. and L. J. Bryan, and actual drilling on the lease had begun by the purchaser, the Livingston Oil Corporation, and the sale was thereby consummated.  Under these circumstances, the assignment by the Bryans to their wives of the Hobbs lease and their subsequent assignment to the Livingston Oil Corporation was entirely ineffective to defeat the tax on the original transaction and we so hold.  ; ; ; . Respondent assessed fraud penalties against petitioners for the year 1919.  The burden of proof to establish fraud is upon respondent and after a careful reading of all the evidence, we conclude that such burden has not been sustained.  So much of the deficiencies for 1919 as consist of fraud penalties asserted under section 250(b) of the Revenue Act of 1918 are disapproved and should be eliminated.  The last*2483  question presented is what taxable gain, if any, petitioners made by reason of their acquisition of stock in the Bryan Oil Corporation, hereafter referred to as the Bryan Co.  Respondent has determined that petitioner C. A. Bryan received stock of the Bryan Co. of the par value of $280,294.96 and that petitioner L. J. Bryan received stock of the same company of the par value of $211,013.71.  He has further determined that the stock had a *124  fair market value of par.  He based his determination largely on the fact that during the period June, 1920, to April, 1921, Sibley & Co. and Ogilvy & Co. sold 184,959 1/2 shares of the stock at par.  They remitted to the Bryan Co. the net proceeds of the sale in the sum of $159,188.42.  He contends that these sales show that the stock had a fair market value of 100 cents on the dollar.  We are not impressed by this contention.  The sales were made far from home and to persons who had no knowledge of the condition of the company.  The sales were the result of high-pressure methods.  The stock was often sold on the installment plan; other sales were made by taking other stock in exchange.  The sales were made in small blocks and to farmers*2484  and factory operatives.  Under the contract between these agents and the Bryan Co. the stock was to net the corporation 85 cents on the dollar and commissions were not to exceed 30 per cent of the sale price.  These commissions were such as to promote sales at fictitious prices.  The stock was never sold on a stock exchange and neither of the selling agents undertook to underwrite the stock.  As said in : "All these circumstances show conclusively to our minds that the stock was not considered worth par by the persons in best position to know its value." We there held that sales similar to those under consideration did not prove market value.  This is in harmony with the decisions of the courts.  In  (affd. ), it is said: The test is the fair market value.  This may be defined to be the value of the property in money as between one who wishes to purchase and one who wishes to sell; the price at which a seller willing to sell at a fair price, and a buyer willing to buy at a fair price, both having reasonable knowledge of the facts. (Italics*2485  supplied.) See also . Applying the above to the facts before us, it can not be said that the farmers and factory operatives living in Illinois, Michigan, and Ohio who purchased or traded in for small lots of this stock had a reasonable or any knowledge of the condition of the Bryan Co. or of its properties or prospects.  We take notice of the eagerness of some people to risk part of their earnings in oil, gold, and similar stock.  To such people the question is not a matter of value but of speculation.  It is a pertinent fact that no attempt was made at this time to sell this stock at par in the home market.  Such a privilege as that was reserved for those who resided at a distance and who were not acquainted with the affairs of the company.  Under these circumstances we are of opinion that the sales by Ogilvy and Sibley do not establish the market value of the stock.  Nor are we impressed by the fact that the Bryans offered to buy out the Imperial stockholders at par.  This will be discussed hereafter.  The fact that petitioner *125  L. J. Bryan, when he saw that the brokers could not sell the stock as contemplated, *2486  tried to dispose of some of his own stock at 50 cents and then at 25 cents and could find no purchaser does not show the market value of the stock in March and April, 1920.  The fact that in October, 1921, the executive committee resolved that the selling price of the stock should thereafter be $1.50 per share is additional evidence of high-pressure methods.  The stock could not then be sold at par.  This is sufficient evidence that it could not be sold at a premium.  Notwithstanding the fact that the sales of Sibley and Ogilvy did not establish the fair market value of the stock, we are of opinion that the stock had a real market value.  There were large and valuable assets behind the stock which, in our opinion, gave it such value.  In the absence of testimony of persons conversant with all the facts which go to make up value, we have the right to ascertain the value of property behind the stock or the value placed on the stock by persons who were in position to know its true value.  Phillips v.United States, and Heiner v. Crosby, both supra.Here we have the stipulation in the contract between the Bryans and the trustees of the Imperial Co.  In making that*2487  contract, the parties dealt at arm's length.  The Bryans had been acting in the management of the Imperial Co. and were thoroughly conversant with the values of its properties.  In that contract it was expressly agreed that the net value of the assets of the Imperial Co. was the amount of $368,972.58.  This value, placed upon these assets by the parties who possessed knowledge of all the facts and who made it the basis of their contract, carries far more weight than the testimony of expert witnesses given nine years after the event.  To these assets the Bryans contributed two oil leases, which cost them $3,500.  No oil was found on these properties and nothing occurred to enhance their value between the date of acquisition and the date they were transferred to the Bryan Co.  We have found that their value was their cost.  Adding the sum of $3,500 to the net value of the assets of the Imperial Co., we arrive at a total value of the assets of the Bryan Co. of $372,472.58.  Against these assets stock was issued in shares of the par value of $1 each to the extent of 751,000 shares.  On this basis we have found that the fair market value of each share was 49 1/2 cents.  At this point*2488  it is contended by petitioners that this value should be offset by the liability of the Bryans to redeem within a certain period the stock of the Imperial Co. at par and also within a certain additional period to redeem the stock of the Bryan Co. at par.  On the other hand, respondent asserts that this agreement shows that the stock of the Bryan Co. was worth par.  The contract was to redeem the stock of the Imperial Co.  The further contract to redeem *126  the stock of the Bryan Co. added nothing to this, since the stock of the old company was exchanged for the stock of the new, dollar for dollar par value.  We have found that the net assets of the old company equaled the par value of its stock, with the result that the Bryans would lose nothing by such redemption whether they redeemed the new stock or the old.  For the same reason, the contract does not show that the new stock was worth par.  All that the old stockholders could receive was the value of their respective interests in the old company.  What is more vital from the Bryans' standpoint is that before the organization of the Bryan Co. they contracted with Sibley and Ogilvy to sell the stock of the new company for*2489  the purpose of meeting this very obligation and then shifted the burden of their agreement to the Bryan Co., so that they not only could not have lost by such redemption, but in fact had shifted the obligation to redeem onto the new corporation and had entered into a contract to sell treasury stock to others for the very purpose of enabling the company to meet this obligation.  We find no merit in these contentions of petitioners and respondent and adhere to the value which we have placed upon the stock of the Bryan Co. in our findings of fact.  Upon final computation the basis for the computations of gain by petitioners should be the cost to them of their stock in the Imperial Co. plus the cost of the two leases contributed by them.  Against this basis should be placed the value of all the stock acquired by them in the Bryan Co. at a value of 49 1/2 cents per share.  The claims of the Bryan wives for deduction of $2,500 each for attorneys' fees is disallowed.  No evidence was introduced to support such a deduction.  Reviewed by the Board.  Judgment will be entered under Rule 50.MURDOCK concurs in the result only.