Court Opinion

ID: 9640555
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:08:18.754845+00
Date Added: 2024-06-11T09:03:39.289364
License: Public Domain

PHILLIPS, Circuit Judge
(dissenting).
In his gift tax return for the calendar year 1932, petitioner claimed a specific exemption of $12,000; in his gift tax return for the calendar year 1933, he claimed a specific exemption of $11,850; in his gift tax return for the calendar year 1934, he claimed no exemption; and in his gift tax return for the calendar year 1935, he claimed a specific exemption of $26,150, making an aggregate of the specific exemptions of $50,000, the amount permitted to him by virtue of § 505(a) (1) of the Revenue Act of 1932.
By a deficiency letter dated February 28, 1935, the Commissioner held that gifts made by the petitioner in 1933 of certain First Liberty Loan Bonds were taxable, and increased the amount of the gross taxable gifts in 1933 from $76,850, as reported by petitioner, to $240,433.33. In determining the deficiency in petitioner’s gift tax liability for 1933, the Commissioner applied as a deduction a specific exemption of $38,000, whereas petitioner had claimed a specific exemption of only $11,850 in his return.
On March 27, 1935, petitioner filed with the Board of Tax Appeals a petition for redetermination of the deficiency for the year 1933, docket No. 78915. On June 10, 1936, the Board entered its decision finding a deficiency of $4,108.17 in petitioner’s gift tax liability for 1933. The petitioner duly filed a petition to review the decision of the Board. The petition and record were filed in this court, October 22, 1936. That decision was affirmed by this court on August 16, 1937 (Phipps v. Commissioner, 10 Cir., *21891 F.2d 627, 112 A.L.R. 1441) and certiorari was denied by the Supreme Court of the United States on November 8, 1937. Phipps v. Commissioner, 302 U.S. 742, 58 S.Ct. 144, 82 L.Ed. 574. In that proceeding the only issue before the Board or the courts was the propriety of the Commissioner’s action in including the gifts of the Liberty Bonds as taxable gifts.
In his gift tax return for the calendar year 1935, which was filed prior to the decision of the Board in docket No. 78915, petitioner claimed a specific exemption of $26,150 representing the balance of his $50,000 exemption not claimed by him in his returns for prior years.
On July 20, 1936, the Commissioner mailed petitioner a deficiency letter in which he proposed a deficiency in petitioner’s gift tax liability for 1935 based in part on the disallowance of the $26,150 specific exemption which had been claimed by petitioner in his return. The letter set forth that the balance of petitioner’s specific exemption had been applied by the Commissioner to the year 1933.
On August 7, 1936, petitioner filed with the Commissioner a protest in writing, excepting to the action of the Commissioner in refusing to allow credit for a specific exemption of $26,150 in 1935. In such protest, petitioner set forth the years in which the specific exemptions had been claimed by petitioner and stated that it was his desire to have the specific exemptions allowed in the years claimed in his returns. At the hearing before the Board in the instant matter, petitioner testified that it was still his desire to take the $26,150 exemption in the year 1935 and not in any prior year, and that he had never done or said anything inconsistent therewith.
After March 27, 1935, the date the petition to review the proposed deficiency for 1933 was filed, the Commissioner could not determine an additional deficiency for that year. § 513(f) of the Revenue Act of 1932. But under § 513(e) of the Revenue Act of 1932, the Board had jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined was greater than the amount of the deficiency, notice of which had been mailed to the petitioner, and to determine whether any additional amount or additional tax should be assessed, if claim therefor was asserted by the Commissioner at or before the hearing or a rehearing. On review, this court had jurisdiction to affirm, to modify, or to reverse the decision of the Board, with or without remanding the case for a rehearing, as justice might require. § 1003(b), Revenue Act of 1926.
Clearly, the Commissioner has no right to determine the amount of exemption a taxpayer shall take in a particular year. Under the statute and the Regulations, the exemption may be utilized in such year or years as the taxpayer may claim at his sole option.
Hence, the Commissioner exceeded his power in undertaking to assign the balance of the unclaimed exemption to the year 1933. It was the Commissioner’s mistake, not the petitioner’s. Petitioner was not bound by the mistake of the Commissioner unless facts and circumstances arose which estopped him from claiming the exemption in a later year. By his 1935 return and by his protest of August 7, 1936, petitioner gave notice to the Commissioner that he claimed the right to take the exemption for the year 1935. It was still within the power of the Commissioner to correct his mistake by asking this court to remand No. 78915 to the Board to permit the Commissioner to file a petition for a rehearing and assert a claim for an additional tax under § 513(e), supra.
Was it the duty of petitioner in his petition to review in No. 78915 to challenge the assignment of the exemption to the year 1933 ? Unless petitioner was estopped, he could not be injured by the Commissioner’s mistake. Why then, should petitioner assign as error an act of the Commissioner which would not prejudice petitioner ?
It is my opinion that petitioner was not estopped and that it was the duty of the Commissioner, not the petitioner, to correct the former’s error.1 That the Commissioner failed to act after due notice and permitted the right to assess the additional tax for the year 1933 to become barred is no fault of the petitioner.
To hold otherwise will deny to the petitioner his statutory right to utilize the exemption in the years he elected to make specific claims therefor, of which claims the Commissioner had ample notice. Petitioner’s claim is not without substance. It *219would have been to petitioner’s advantage on the basis of total tax liability to have had the exemption allowed for the year 1935 rather than the year 1933.
On October 15, 1935, petitioner made gifts aggregating 10,000 shares of 7% Cumulative Preferred Stock of Nevada-California Electric Corporation 2 to 13 persons. The smallest gift to any one donee was 100 shares and the largest 2,500 shares.
At the hearing before the Board in the instant case, three brokers, after duly qualifying as experts, testified that no group or individual purchaser for a block of 10,000 shares of stock in Nevada could have been found on October 15, 1935, at the price of 51 per share. They testified that the best price obtainable for such a block of stock between a willing buyer and a willing seller on that date was between 38 and 41 per share. Each had been ■engaged in the security business in Denver for more than 20 years. The market for stock of Nevada was concentrated in Denver where these brokers were located. The market therein was thin and the brokers were familiar with the affairs of Nevada and the market action on the stock. One broker testified that an over-the-counter house would have purchased a block of 2,000 shares at from 5 to 6 points below the market. Another of the witnesses testified that a brokerage house would have paid from 3 to 5 points below the last sale price on October 15, 1935, for 2,000 shares of the stock. In January, 1935, the firm, with which one of the brokers was associated, purchased 1,350 shares at two points below the market. On January 3, 1935, one brokerage house bought 800 shares at 39 and sold 100 shares of this lot at 43.
' The Commissioner offered the testimony of only one witness. He testified that, assuming a willing buyer and a willing seller involving 2,000 shares of Nevada stock, the price on October 15, 1935, would have been 51 per share and that the same price would have applied in case of a block of 500 shares, 10,000 shares, 100,000 shares, or all of the 104,833 shares outstanding. He further testified that a dealer purchasing the stock for resale in the amount of 2,-000 shares would pay from 3 to 5 points below the last sale; that the discount might be a little smaller if the block were as much as 10,000 shares.
The Board held that the property to be valued was not a block of 10,000 shares, but 13 separate blocks, ranging from 100 to 2,500 shares. In the course of its opinion the Board stated:
“Petitioner did not offer any evidence as to the fair market value per unit of a block of 2500 shares, or 1250 shares, or 1000 shares, or 300 shares, or 100 shares.”
It found that the trading in Denver in 1935 involved-at least 10,946 shares. This finding was erroneous because Joint Exhibit A-8, upon which it is based, contained many duplications. In 1935, only 6,200 shares of the stock, exclusive of the gift stock, were transferred on the books of Nevada.
Art. 19(1) and (3) of Regulations 79 provided that in the case of stocks and bonds the value at the date of the gift is the fair market value per share or bond on such date.
The decisions of the Board of Tax Appeals and of the courts have definitely established that effect must be given to the size of the block of shares under consideration where that is shown to be an element influencing value.3 The Eighth Circuit approved this principle in the recent case of Helvering v. Maytag, 8 Cir., 125 F.2d 55.
Because of these decisions, Art. 19(1) and (3) of Regulations 79, supra, were amended by T.D. 4901, approved May 18, 1939. The Regulations as amended no longer require a valuation of large blocks of stock according to the most recent sale price of small lots.
The gifts were made on the same day as a part of the same transaction. The Board held that inasmuch as the petitioner had given a block of 10,000 shares to 13 people in varying amounts, the unit to be valued was not 10,000 shares, but each of the separate units given to the several donees. I think the unit to be valued was 10,000 shares. The underlying theory of the gift tax is that it is a transfer tax *220“upon the transfer during such calendar year by any individual, ' * * * of property by gift.” Sec. 501, Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 580. The tax is exacted from the donor and it is the donor’s position which is to be inquired into in determining the tax.
Had the petitioner decided to sell on October 15, 1935, 10,000 shares of Nevada stock and had sold to 13 different persons, the effect of such sales upon the market value of the stock would have been exactly the same as if the petitioner had placed 10,-000 shares upon the market for sale on the same date.
The courts and prior decisions of the Board have valued as a unit like gifts of stock in a particular corporation made on the same day to several donees.4
I conclude that the Board erred in not valuing the 10,000 shares as a unit, in not giving consideration to the effect of the size of the block of 10,000 shares, and in its finding as to the number of shares traded in Denver in 1935.
It is my opinion that the case should be reversed with instructions to allow the exemption and redetermine the valuation of the shares in accordance with the views above expressed.

 See Central Market Street Co. v. Commissioner, 25 B.T.A. 499, 506; Newport Co. v. Commissioner’, 22 B.T.A. 833, 846.

 Hereinafter called Nevada.

 Safe Deposit & Trust Co. v. Commissioner, 35 B.T.A. 259; Helvering v. Safe Deposit & Trust Co., 4 Cir., 95 F.2d 806, 811, 812; Jenkins v. Smith, D.C.Conn., 21 F.Supp. 251; Wood v. United States, Ct.Cl., 29 F.Supp. 853; Commissioner v. Shattuck, 7 Cir., 97 F.2d 790; Helvering v. Kimberly, 4 Cir., 97 F.2d 433; Squier v. Commissioner, B.T.A.Memo., C.C.H. Dec.No. 10679-K (1939).

 See Commissioner v. Shattuck, 7 Cir., 97 F.2d 790; Helvering v. Kimberly, 4 Cir., 97 F.2d 433; F. J. 'Sensenbrenner v. Commissioner, B.T.A.Memo, C.C.H. Dec.No. 9215-A (1935); Joseph Soss v. Commissioner, B.T.A.Memo., C.C.H.Dee. No. 11371-B (1940); Staley v. Commissioner, 41 B.T.A. 752.