Court Opinion

ID: 4480307
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:12.430444+00
Date Added: 2024-06-11T15:03:33.697401
License: Public Domain

Tankenwald, /., concurring: I desire to record my separate views because of tbe possibility that certain language in the majority opinion may be given a broader application than is warranted. I am far from convinced that a trust was in fact created in the instant situation. In substance, the transaction seems to have been no more than an option with the shares pledged with the Agricultural Bank as collateral to assure the so-called beneficiaries that the shares would be transferred if the option was exercised. Whether the transaction is considered a trust with an option or a collateralized option unfettered by a trust characterization, the basic issue herein is how the shares were acquired. If they were acquired in whole or in part by gift, there is a transfer of basis under section 1015 and there is a “tacking” of the holding period under section 1223 (2).1 Resolution of this issue turns upon a decision as to whether the gift, if any, is reflected in the acquisition of the shares or in the option itself. The majority concludes that if there was any gift2 it was reflected in the option itself. The dissent concludes that the gift was reflected in the acquisition of the shares and further concludes that section 1223(2) applies because the dollar amount paid upon exercise was exactly the same as the cost basis to the donor. In this latter connection, I disagree that mere dollar equivalent satisfies the “same basis” requirement of section 1223 (2). It seems clear to me that Congress intended a conceptual application of this phrase, i.e., to describe the character of the transaction by which the property was acquired.3  The language of the majority opinion does not appear to be limited to the situation where the option has independent significance prior to exercise, as distinguished from a situation where the option is illusory — for example, because it is revocable or is so surrounded by restrictions or contingencies as to be meaningless or is otherwise valueless. To me, this is a critical distinction. If an option has independent significance, I would hold that the gift, if any, was reflected in the option itself; if an option is illusory, it may well be that the gift does no occur until the actual transfer of the property at a bargain price. Cf. Commissioner v. LoBue, 351 U.S. 243, 248 (1956); Commissioner v. Smith, 324 U.S. 695 (1945); Gem Securities Corporation v. United States, 102 Ct. Cl. 86, 55 F. Supp. 109, 116 (1944). The record before us is devoid of any evidence, and the briefs are likewise silent, as to whether the option herein had sufficient substance as to have independent significance prior to exercise. Under such circumstances and keeping in mind that the burden is on the taxpayer, I agree with the majority decision for the respondent.4  Simpson, /., agrees with this concurring opinion.   It is not necessary to decide whether the splitting of basis is precluded where the transfer is part gift and part purchase, at least where the issue involves the transferee’s basis. Cf. Elizabeth H. Potter, 38 T.C. 951 (1962); Reginald Fincke, 39 B.T.A. 510 (1939); see Wurzel, “The Tax Basis for Assorted Bargain Purchases,” 20 Tax L. Rev. 165, 177 (1964). Nor is it necessary, to decide whether the phrase “in whole or in part” in sec. 1223(2) requires a “tacking” of the holding period of the donor with respect to all the property or permits a “tacking” of the holding period only to the gift element of the transaction.    Connor did not have the familial relationship to Crane, Jr. He was president of the Agricultural Bank, which was the so-called trustee and which had had a long business relationship with Eaton Paper Corp. As to him, there may well not have been a gift under any circumstances,, but the record is insufficient to permit a determination on this point.    It should be noted that the facts of this case do not entirely fit the standard laid down by the dissent. The so-called beneficiaries acquired the shares at an average cost; as to any, particular share, this amount could be more than, less than, or exactly equal to the amount paid for the shares upon original acquisition.    Indeed, there is some evidence in the record from which it can be inferred that the options herein did have some such significance. The shares of Eaton Paper Corp. were traded over the counter. For aught that appears, the options were fully transferable. Cf. sec. 1.421-6(e), Income Tax Regs. It is possible that, under the terms of the instrument, the rights of each optionee terminated upon death, but, since this involves only an actuarial factor, it would merely reduce rather than destroy the value of the option. Goodwin v. McGowan, 47 F. Supp. 798 (W.D.N.Y. 1942). With respect to the issue of revocability, even a simple option not supported by consideration can be irrevocable. See, e.g., N.Y. General Obligations Laws, sec. 5-110,9, which was enacted in 1964, replacing N.Y. Pers. Prop. Law, sec. 23. It may well be that in the instant situation the collateral-ization of the option was an effective substitute for consideration. In any event, petitioners have not sought to show us that the options were so readily revocable by Crane, Jr., as to preclude a finding of independent significance.