Court Opinion

ID: 4480342
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:13.708252+00
Date Added: 2024-06-11T15:03:38.451852
License: Public Domain

Hoyt, J., dissenting: I must respectfully dissent. There are too many gaps in the petitioners’ evidence to permit me to agree with the majority’s view that a gift was intended or made by the senior Hitchon to his three sons in 1934 or 1935 when he transferred 1,508 shares of Glen Woolen Mills to the treasury of the family corporation. The Commissioner’s determination that the taxpayers’ basis in their stock in Glen Woolen Mills, Inc., was $100 instead of $37,800 as claimed by each taxpayer is presumptively correct. Each son started out owning one share of stock with a cost basis of $100 before 1934. On liquidation in 1960 each shareholder owned the same one share of stock and received thereon a distribution of $61,950.38. The Commissioner determined that the long-term capital gain realized was $61,850.38. I would uphold this determination. Petitioners contend, but in my view have not established by the evidence, that their basis was increased by $37,700 when their father donated 1,508 shares of stock, having a cost basis in his hands of $150,800, to the company. At that time each son owned one share. After the transfer to the corporation, they each continued to own the same one share and their father had reduced his holdings to one share so that, in effect, each of the four thereafter owned 25 percent of the outstanding corporate shares. It is the resulting increase in fractional stockholding interest which petitioners urge amounted to a gift of the 1,508 shares, not to the transferee corporation but instead to the three sons, individually. I agree wholeheartedly that such a transfer may well result in a gift to the other family members who are stockholders in a closely held family corporation. However, at the time of the donation by Walter G. Hitchon, Sr., to the corporation of the 1,508 shares, not only did all of the stockholders’ and directors’ minutes reflect that the donation was to the corporation, and that the stock was to be held by it as treasury stock, but the stockholders, who were the senior Hitchon and his three sons, passed a resolution that the directors were authorized to acquire the stock donated for the corporation and “to sell or otherwise dispose of such stock when acquired at such time or times and in such manner as to them may seem advisable.” In my view such resolution, in the light of the loss situation disclosed by the company’s financial records for 1934 and 1935, is completely incompatible with the years-later hindsight suggestion that a gift to the sons was intended or made at that time. Petitioners produced no evidence that the donor treated or regarded the transfer to the company as a gift to his sons; no evidence of a reported gift or payment of a gift tax was adduced. The evidence of the corporate minutes, together with the balance sheets and the other evidence discussed in the majority opinion, convinces me that no gifts to the sons were intended or made. In the face of all the evidence indicating no gifts to the sons, the sole evidence relied on by petitioners is that the other shareholders were the donor’s sons. They therefore argue that since they were the natural objects of the donor’s bounty, the father must have intended a gift to them when he donated his stock to the company. I find this, standing-alone, inadequate. In the absence of any evidence from petitioners that the donor or the donees ever previously regarded or treated the transaction as a gift from father to sons in 1934 or 1935,1 would hold for respondent on the record presented to us. Viewing all of the evidence, I cannot conclude that petitioners have met their burden of proof. I accordingly must record this dissent. Raum, BRUCE, and Withey, JJ., agree with this dissent.