Court Opinion

ID: 8308060
Source: CourtListenerOpinion
Date Created: 2022-10-17 13:24:43.316078+00
Date Added: 2024-06-11T16:44:37.307684
License: Public Domain

Smith :
dissenting: The prevailing opinion places undue emphasis upon the steps and forms adopted to effectuate the intent of the parties at interest in the transaction before us, those parties being the Nielsen, Goetjen & Metson, an’d Canning companies — individuals mentioned were merely the nominees or representatives of these companies. The intent of the parties is clearly expressed in the original contract, to wit, that the stockholders of the Asparagus Company “ desire to sell ” and the Canning Company “desires to buy ” from them all of their interest in the Asparagus Company “ at the total purchase price of $680,000.00, payable $280,000.00 in cash and the balance of $400,000.00 in promissory notes secured by mortgage upon the property ” of the Asparagus Company. In order to provide the security mentioned, the Nielsen and Goetjen & Metson companies (owning 100 per cent of the stock of the Asparagus Company) caused the Asparagus Company to convey its assets to a nominee of the Canning Company, who then executed the mortgage to provide the security for the notes of the Canning Company. The legal forms used to accomplish the desired result did not change the substance of the transaction, which is controlling here, unless each step, although comprehended by the original plan, is nevertheless, for tax purposes, distinguishable and separable from the whole transaction (cf. J. D. Bigger, 19 B. T. A. 797) ; but, as we said in George G. Moore, 19 B. T. A. 364, 370, 371:
* * * Where a general .purpose is carried out by a series of separate contracts such as those here involved, all interdependent and all intended *234to effect a definite result understood and agreed upon before any one of the several obligations is assumed, the realization of taxable income by one of the individual parties is determined by the result to him of the several transactions. Cf. Minneapolis Syndicate, 13 B. T. A. 1303; R. H. Perry & Co., 12 B. T. A. 328; Mellon v. United States, 279 Fed. 910.
* * * H* H: * *
* * * these -several related transactions were in effect one transaction and the methods used or forms adopted to effect the result agreed upon were hot material, the taxability of this petitioner being determined not by the form, but by the result. Cf. Western Maryland Ry. Co. v. Commissioner, 33 Fed. (2d) 695; Weiss v. Stearn, 265 U. S. 242; United States v. Phellis, 257 U. S. 156; Gulf Oil Corporation v. Llewellyn, 248 U. S. 71. * * *
In the taxable year before us, the Nielsen and Goetjen & Metson companies received, net, $200,000 cash upon the sale of their interests (which was nothing more than their stock) in the Asparagus Company, and a lien upon the property of the Asparagus Company for the balance of the net purchase price of $600,000. Upon default of the purchaser in 1921, the parties were placed in status quo, which the prevailing opinion indicates was accomplished by the Nielsen and Goetjen & Metson companies paying $17,500 and “ the cancellation and release of the unpaid mortgage notes.” From a consideration of the expressed intent of the parties, the various interrelated contracts, the result accomplished in 1920, and the default and reconveyance in 1921, I am satisfied that the transaction was in truth and substance a sale of the stock for a net consideration of $600,000 upon which the Nielsen and Goetjen & Metson companies realized a gain, and not for a net consideration of $200,000 upon which the prevailing opinion allows them a loss. See United States v. Board, 14 Fed. (2d) 459; O'Meara v. Commissioner, 34 Fed. (2d) 390; Commissioner v. Moore, 48 Fed. (2d) 526; Curran v. Commissioner, 49 Fed. (2d) 129; Commissioner v. Garber, 50 Fed. (2d) 588; W. S. Dudley, 15 B. T. A. 570. Cf. James Duggan, 18 B. T. A. 608; George M. Brady, 22 B. T. A. 596; Fred A. Hellebush et al., Trustees, 24 B. T. A. 660.