Court Opinion

ID: 4626629
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:59:39.097778+00
Date Added: 2024-06-11T08:00:04.654827
License: Public Domain

SHERMAN EWING, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Ewing v. CommissionerDocket No. 93013.United States Board of Tax Appeals40 B.T.A. 912; 1939 BTA LEXIS 782; November 15, 1939, Promulgated *782  A legacy in the sum of $300,000 was paid and satisfied by the transfer of a block of securities and some cash.  Held, the transfer constituted a "sale or other disposition" of property; held, further, the basis for gain or loss on subsequent sale of part of the securities was the cost to petitioner, i.e., the fair market value of the securities at the date of the transfer.  Suisman v. Eaton,15 Fed.Supp. 113; affd., 83 Fed.(2d) 1019; certiorari denied, 299 U.S. 573">299 U.S. 573; William R. Kenan, Jr., et al., Trustees,40 B.T.A. 824">40 B.T.A. 824. Russell G. Rogers, Esq., for the petitioner.  Frank M. Thompson, Esq., for the respondent.  VAN FOSSAN *912  This proceeding was brought to redetermine a deficiency in income tax of the petitioner for the year 1934 in the sum of $1,231.67.  The petitioner claims an overpayment of $4,967.25.  The sole issue is the proper basis for computing the gain on securities sold by the petitioner in 1934.  FINDINGS OF FACT.  The facts were stipulated substantially as follows: The petitioner resides in Amenia, New York.  His brother, Thomas Ewing, Jr., died testate*783  on February 8, 1933, a resident of the State of New York.  The pertinent portions of the will of Thomas Ewing, Jr., are as follows: Ninth: I give and bequeath to each of my brothers and sisters the sum of One Hundred Thousand Dollars ($100,000) and I give and bequeath to each of them respectively the further sum of Fifty Thousand Dollars ($50,000) for each child of his or hers living at the time of my decease.  * * * Fourteenth: I direct that all of the legacies given and bequeathed by this my Will shall be paid free of any transfer, inheritance, or succession tax, and that any tax which may be payable with respect thereto under the laws of the United States or any state thereof shall be paid out of my residuary estate, it being my intention that each and all my legatees except my residuary legatees shall receive the full amount given to him or her, without any deduction therefrom.  * * * Sixteenth: I direct that any or all of the legacies given and bequeathed by this my Will may be paid, and any trust fund created hereunder may be set up, out of the securities which I may own at the time of my decease at their fair market value on the dates of the payment of the said legacies*784  or the constitution of the said trust funds, which said fair market values *913  may be determined by my executors or a majority of them.  I direct also that my trustees hereunder, in the making or renewing of investments in any trust fund hereby created shall be under no obligation to invest in the particular kinds of securities which the courts or laws of the State of New York require in the absence of the permission hereby given.  And I further direct that my trustees shall not be required to create any sinking funds for the benefit of remaindermen out of the full income of any securities held by me at the time of my decease or which they may purchase at a premium in the investment or reinvestment of trust funds.  * * * Seventeenth: I hereby authorize and empower my executors to sell any or all of my residuary real estate, either at public or private sale, whenever they shall deem proper and expedient, upon such terms and in such manner as to them shall seem best, and to make and deliver good and sufficient deeds of conveyance thereof.  The will of Thomas Ewing, Jr., was admitted to probate by the Surrogate's Court, Westchester County, New York, on February 28, 1933, and*785  on that date letters testamentary were duly issued by the court to Lucia Chase Ewing, William F. C. Ewing, and Maitland F. Griggs, the executors named in the will.  At the date of death of his brother, Thomas Ewing, Jr., the petitioner had four living children and by reason thereof the total bequest to the petitioner under the "Ninth" clause of the decedent's will amounted to $300,000.  The said will contained no devise, bequest, legacy, or other provision for the benefit of the petitioner individually other than as hereinabove set forth.  On December 16, 1933, the said executors transferred and delivered to the petitioner certain securities, together with the sum of $12,744.64 in cash.  Upon the transfer and delivery by the executors to the petitioner of such securities and cash the petitioner executed and delivered to the executors his receipt, waiver, and release.  That release states as follows: I, SHERMAN EWING, * * * do hereby ACKNOWLEDGE and DECLARE that I have this 16th day of December, 1933, received from LUCIA CHASE EWING, WILLIAM F. C. EWING and MAITLAND F. GRIGGS, Executors of and under the Last Will and Testament of the said Thomas Ewing, Jr., deceased, the following*786  securities: [Here follows an itemized list of the securities and their values.] together with the sum of Twelve Thousand Seven Hundred Forty-four and 64/100 Dollars ($12,744.64) in cash, the same being in full payment and satisfaction of the sum of Three Hundred Thousand Dollars ($300,000), being One Hundred Thousand Dollars ($100,000) and the further sum of Fifty Thousand Dollars ($50,000) for each of my children, * * * pursuant to the Ninth Clause of the said Last Will and Testament, without deduction for transfer, inheritance or estate taxes or otherwise, and IN CONSIDERATION of said payment to me as aforesaid I do hereby release and forever discharge the said LUCIA CHASE EWING, WILLIAM F. C. EWING, *914  and MAITLAND F. GRIGGS, individually and as such executors, and the Estate of Thomas Ewing, Jr., of and from all claims and demands whatsoever on account of my said legacy * * * The securities were transferred and delivered by the executors and accepted by the petitioner at the valuations set forth in the release, totaling $287,255.36.  Such valuations represented the market values of the securities on December 16, 1933, as determined by the executors and the petitioner. *787  During the calendar year 1934 the petitioner sold certain of the securities which had been so transferred and delivered to him.  The aggregate market value of such securities on February 8, 1933, was $78,489, their aggregate market value on December 16, 1933, was $99,665.25, and the total sum received by the petitioner from their sales was $96,335.28.  In filing his income tax return for the taxable year 1934, the petitioner used as a basis in determining gain or loss upon the sale of the securities above referred to the values thereof as of February 8, 1933.  On March 15, 1935, the petitioner filed a claim for refund and on May 26, 1936, filed an amended claim for refund in the amounts of $3,636.85 and $5,590.08, respectively.  OPINION.  VAN FOSSAN: The question in this case is the basis for computing gain or loss to the petitioner on the sale of certain of the securities received as above set out.  Petitioner contends: (1) The legacy was general and not specific, citing ; *788 ; . (2) Petitioner acquired the securities by purchase on December 16, 1933, and not by "bequest, devise or inheritance", citing , affd., ; and , affd., ; certiorari denied, . (3) Petitioner's proper basis for computing gain or loss on the sale of such securities was their cost to him on December 16, 1933, not their values at the date of the death of decedent (February 8, 1933).  Respondent contends that the securities were acquired by bequest and that the basis on sale by the beneficiary is the fair market value of the same at the date of death of decedent.  In a recent case, , we had for consideration the question of gain or loss to the fiduciary in a situation where the fiduciary was directed by will to pay the legatee $5,000,000 when she attained the age of 40, with authority to substitute securities of equal value*789  at the date of payment.  We held that taxable income is realized if the fiduciary uses the securities, *915  the value of which at the time of payment is in excess of their basis to the estate.  It was further held, following ; affirmed, per curiam,; certiorari denied, ; rehearing denied, , that the disposition is a "sale or other disposition" and that the discharge of the right of the legatee is the amount realized. Albeit in the Kenan case the Board, not there having the question of basis to the beneficiary, refrained from ruling on that question, the logic of the opinion and the observations of the Board in mooting the question indicate clearly that, as a corollary to that decision, petitioner here must be sustained.  We quote: * * * The beneficiary received a bequest of $5,000,000 in cash which could be paid in an equivalent of securities and did not receive a bequest of any securities.  Her acquisition of the securities was unlike that of a residuary legatee or heir whose title relates back to that of the testator and who is*790  affected by any change in value of the property.  There is reason to give the latter taxpayers the basis of value at the date of death of the testator.  The situation of the beneficiary here is quite different and perhaps her basis is the value of the securities when she acquired them in satisfaction of her claim against the trust for cash or its equivalent.  Perhaps then for the first time they were appropriated for such use and then for the first time she acquired any interest in them.  The question which was reserved in the Kenan case, being here presented, we hold that, under the facts stated, the basis to the beneficiary for computing gain or loss on the subsequent sale of securities received in satisfaction and discharge of the legacy of $300,000 was their cost to him, i.e., the fair market value of such securities as determined on December 16, 1933, the date when petitioner acquired them from the executor.  The legacy was general and not specific.  The transaction by which petitioner acquired the securities was a "sale or other disposition." Sec. 111, Revenue Act of 1934; *791 The securities were not "acquired by bequest, devise, or inheritance" as provided by section 113(a)(5) of the Revenue Act of 1934.  Decision will be entered under Rule 50.