Court Opinion

ID: 4606938
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:39:36.455109+00
Date Added: 2024-06-11T07:53:27.679226
License: Public Domain

EDWIN M. BROWN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Brown v. CommissionerDocket No. 7563.United States Board of Tax Appeals12 B.T.A. 841; 1928 BTA LEXIS 3430; June 27, 1928, Promulgated *3430 Frank C. Olive, Esq., and George S. Olive, C.P.A., for the petitioner.  J. E. Marshall, Esq., for the respondent.  MURDOCK *841  Income taxes for the calendar year 1919, in the amount of $11,830.17 are in controversy.  The petitioner assigned several errors in support of which he admits he offered no evidence.  The alleged errors which he now urges for our consideration are: (1) That the Commissioner erroneously determined that the petitioner received a taxable profit from the receipt of $50,000 par value of the preferred stock of the Standard Brick Co. in the year 1919; and (2) that the Commissioner erroneously determined that these shares of stock had a fair market value equal to their par value at the time received by the petitioner.  FINDINGS OF FACT.  The petitioner is an individual residing at Crawfordsville, Ind.  For some years prior to 1917 he had been a stockholder in the Standard Brick Co. and in the year 1917 he sold certain land to this company and as consideration received from the company certain bonds and preferred stock of the company.  At the same time the petitioner had an understanding with the company that if the business*3431  of the company developed and was finally disposed of through a sale, he was to receive additional compensation for the land and for his services in connection with the sale of the business.  No definite amount or time was agreed upon.  In 1919, the petitioner on behalf of the Standard Brick Co. entered into an agreement with F. W. Shideler & Co. whereby the latter agreed on behalf of the Standard Shale Brick Corporation to purchase the preferred stock of the Standard Brick Co. for cash and to give the stockholders of the Standard Brick Co. the privilege of exchanging their common stock for preferred or common stock in the Standard Shale Brick Corporation and to take over and assume the liabilities of the Standard Brick Co.  Shortly thereafter in June, 1919, it was finally agreed between the petitioner and the Standard Brick Co. that the petitioner should have as a commission and as further consideration for his land $50,000 par value preferred stock.  Thereafter the petitioner as secretary of the Standard Brick Co. issued $50,000 par value of the preferred stock of that company to *842  himself and at the same time on June 19, 1919, sent a letter to the Standard Brick Co. which*3432  was as follows: I hereby agree that in the event F. W. Shideler & Company do not finally take over The Standard Brick Company according to the terms of the contract now in existence between F. W. Shideler & Company and The Standard Brick Company, that I will voluntarily return to the treasury of The Standard Brick Company 500 shares of Preferred Stock issued to me as a part consideration for 134 acres of land which Mrs. Brown and I deeded to The Standard Brick Company in November, 1917.  This agreement is made in duplicate and the copy belonging to The Standard Brick Company is to be held by Walter L. Brown, Frankfort, Indiana, President of The Standard Brick Company.  (Signed) E. M. BROWN.  Witness: (Signed) NELLE I. BANKS.  After entering into the agreement with the petitioner, F. W. Shideler & Co. came upon the real estate of the Standard Brick Co. and erected certain buildings, but did not operate the plant for the manufacture of bricks.  The Standard Brick Co. had no earnings for the year 1919, but in that year the Standard Shale Brick Corporation paid dividends on the stock of the Standard Brick Co. F. W. Shideler & Co. did not carry out its agreement for taking over*3433  the Standard Brick Co., inasmuch as the Standard Shale Brick Corporation did not pay all of the debts of the Standard Brick Co., nor did it carry out the other provisions of the contract.  In 1921, the Standard Brick Co. went into bankruptcy.  In August, 1923, the petitioner returned the aforementioned certificate for $50,000 par value of the preferred stock of the Standard Brick Co. to the then receivers of the Standard Brick Co.  The holders of bonds of the Standard Brick Co. eventually received about 90 cents on the dollar for their bonds, but the stockholders received nothing on their stock.  OPINION.  MURDOCK: The Commissioner determined that the title to $50,000 par value preferred stock of the Standard Brick Co. was transferred to the petitioner in 1919, and that the stock was "worth par" when received.  Apparently he determined under section 202(b) of the Revenue Act of 1918, that profit in some amount resulted, but in what amount we do not know.  The petitioner makes two contentions, one, that he never became the owner of the stock and consequently could not have realized any profit from the receipt of it, and another, that even if the stock was his in 1919, it was not*3434  worth $50,000.  The burden of proof to sustain these contentions was upon the petitioner, inasmuch as the determination of the Commissioner is *843 prima facie correct.  The petitioner testified that he never had any written agreement in regard to this preferred stock and we are unable to determine from his testimony in regard to the oral agreement which he claims to have had that he did not acquire absolute title to the stock.  His testimony is confusing.  In the first place, he said that he was to receive the stock if the business of the company developed and was finally disposed of through a sale.  The business of the company never developed and was never finally disposed of through a sale, so that if this was his agreement he never was entitled to the stock.  However, he later testified that after he had entered into the agreement with F. W. Shideler & Co. "this matter with reference to my commission had been hanging fire, and it was finally agreed upon that I should receive these five hundred shares, or $50,000 of preferred stock, and I went to my office from Frankfort, as I remember, Frankfort, Indiana, and issued the stock and at the same time had my secretary*3435  draw up an agreement which I turned over to the President of the Company at Frankfort, Indiana." The material portions of the writing to which the witness referred have been set out in our findings of fact.  The sending of this letter, so far as the evidence discloses, was a purely voluntary act upon the part of the petitioner, was without consideration and was not binding upon him.  It is no more binding because long after the Shideler agreement had fallen through and the stock had become worthless the petitioner returned the certificate.  The agreement which immediately preceded the sending of this letter seems to have superseded the previous agreement.  The witness says it was a final agreement whereby he was to receive the stock as his own.  He is not sure that thereafter he did not receive dividends on the stock.  Considering all of the testimony we are not convinced that the stock was his, but what is more important we are not convinced that it was not his, and the presumption in favor of the Commissioner must prevail.  The situation is much the same in regard to the value of the stock.  A banker of Crawfordsville, Ind., was called as a witness by the petitioner and was questioned*3436  in regard to the value in 1919 of the preferred stock of the Standard Brick Co.  He was familiar with the affairs of this company at that time and stated that in his opinion the stock was not worth 25 cents on the dollar in the early part of 1919, but that after the agreement with F. W. Shideler & Co. was entered into the stock was a little more attractive as a speculation and would bring a little higher price on the market.  He also testified that the par value of the stock was greatly in excess of its real value.  This was a start in the right direction, but it does not enable us to determine *844  the value of this stock when received by the petitioner.  We are unwilling to guess at the value or to disturb the Commissioner's determination.  . Judgment will be entered for the respondent.