Court Opinion

ID: 4593533
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:10:59.880324+00
Date Added: 2024-06-11T07:51:04.925279
License: Public Domain

FANNIE SNYDER HICKMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  O. L. HICKMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Hickman v. CommissionerDocket Nos. 16253, 16254.United States Board of Tax Appeals24 B.T.A. 438; 1931 BTA LEXIS 1643; October 23, 1931, Promulgated 1931 BTA LEXIS 1643">*1643  1.  Where a notice of deficiency is mailed, and the tax is assessed and paid, within the five-year period prescribed by sec. 277(a)(3), Revenue Act of 1926, a second determination, made within 60 days after the expiration of the five-year period, comes too late, since sec. 277(b) does not in such circumstances extend the five-year period by 60 days.  2.  An instrument whereby a husband, residing in Louisiana, made a gift to his wife of an undivided one-half of his undivided one-half interest in an oil and gas lease, construed as not divesting the husband of all interest in the lease, but as giving the wife for her separate use a one-fourth interest in the lease and leaving the ownership of the remaining one-fourth in the community.  3.  The husband and wife subsequently sold the undivided half interest in the lease for cash, stock and notes, which were divided between them.  Held, the share of the proceeds received by the husband was received in behalf of the community, and one-half thereof was taxable to him as gain from the sale, the cost having been recovered by him in prior years.  4.  For the purpose of determining the amount of the gain, the shares of stock are valued1931 BTA LEXIS 1643">*1644  at par, in view of the adoption of that value by the respondent and its recognition by the issuing corporation's appraisal committee, and the notes are considered to be worth their face value, there being no evidence of the value adopted by the respondent and the husband's testimony indicating that he regarded the notes as cash.  E. L. Bono, Esq., and S. M. Cook, Esq., for the petitioners.  T. M. Mather, Esq., and J. M. Morawski, Esq., for the respondent.  STERNHAGEN 24 B.T.A. 438">*439  Respondent determined deficiencies in the income tax for 1920 of petitioners, husband and wife, of $9,730.21 and $9,730.20, respectively, by adding to the income of each $75,933.38 representing additional community profit from the sale of an interest in an oil lease, and by deducting $54,450 as community loss on sales of stocks and $13,548.45 as loss from drilling dry holes.  Petitioners allege that the husband owned no interest in the lease sold; that the wife derived no profit from its sale; and that no loss was sustained by either from the subsequent sale of stock.  Drilling losses are conceded.  In Docket No. 16254 petitioner also contends that the statute of limitations1931 BTA LEXIS 1643">*1645  bars collection.  FINDINGS OF FACT.  The petitioners are husband and wife and were residents of Shreveport, La., in 1919, 1920 and prior thereto.  O. L. Hickman, the husband, was engaged principally in the development and operation of oil properties in Louisiana, buying and selling leases, and he derived a substantial income from royalties.  On January 20, 1919, he acquired from Boisseau & Baird, for a consideration of $3,870, certain oil and gas properties, known as the Norton lease, situated in Caddo Parish, Louisiana.  Prior to 1920 he had disposed of all his property except a half interest in 40 acres, and had, with the approval of the Commissioner, recovered its entire cost for purposes of income tax in computing profit from the sales made.  24 B.T.A. 438">*440  On April 19, 1920, he made, by a notarial instrument, a gift to his wife of: "An undivided one-half (1/2) of his undivided one-half (1/2), being an undivided one-fourth (1/4) interest in and to that certain oil and gas lease or grant acquired by him from R. C. Boisseau, during the month of January, 1919, on" the 40 remaining acres, more particularly described.  A short time prior to this gift the first well on the property1931 BTA LEXIS 1643">*1646  was brought in.  On August 25, 1920, petitioners transferred to the Sakaba Oil Corporation divers leases of oil and gas properties and among them "their undivided one-half interest in" the 40 acres of the Norton lease.  The corporation had been organized about May, 1920, by Baird and Hickman.  Hickman and his wife held a controlling interest in it.  The Norton lease, which contained the company's only producing well, was valued by the appraisal committee at $187,500.  The consideration recited $190,000 represented by $32,350 in cash and 31,530 shares of its common stock of the par value of $5 a share, but payment therefor was actually made by the issuance of 32,093 [sic] shares, of which Hickman received 15,492 and his wife 16,600; $24,000 in cash; and notes of a face value of $8,350.  Hickman took one-half of the cash received, which he reported as income in 1920 on a separate tax return, and his wife took the other half.  The shares of stock were divided between them, and in December, 1920, Hickman sold 14,400 shares for $16,200, and his wife sold 16,000 shares for $18,000.  Each still retains some of the remainder.  In computing petitioners' tax liability for 1920, respondent1931 BTA LEXIS 1643">*1647  divided between them a loss of $109,100, computed by subtracting from the aggregate par value of the shares sold the amounts received therefor.  The larger part of Fannie Snyder Hickman's portion of the proceeds from the sale of the Norton lease was invested by Hickman in bonds issued in his name, but for her benefit, and monies later realized from them were deposited to her account in the Vivian State Bank.  Fannie Snyder Hickman also acquired, with proceeds of the sale, building and loan company stock and real estate mortgage notes, which were in her name.  She habitually left to Hickman the administration of her affairs.  On March 8, 1921, Hickman filed for himself and wife a joint income-tax return for 1920, showing a net income of $78,285.58 and a profit of $44,804.36 from the sale of stocks and leases.  On May 14, 1921, both filed separate returns for 1920, each showing a net income of $39,142.78 and a profit of $22,402.18 from said sale, these figures being one-half the amounts reported in the joint return.  24 B.T.A. 438">*441  In computing Hickman's tax liability for 1920 the Commissioner treated as income taxable to him one-half of the consideration of $190,000 recited in the1931 BTA LEXIS 1643">*1648  assignment to the Sakaba Oil Company, and determined that the community income resulting from the sale was understated in petitioners' return by $151,986.76, one-half of which he treated as additional income to each.  In March, 1921, there were assessed against Hickman for 1920 income taxes in the amount of $19,981.15, and on March 6, 1926, a jeopardy assessment was made of additional taxes in the amount of $9,730.21.  On August 4, 1924, respondent mailed to Fannie Snyder Hickman a notice of deficiency of $647.14 in income taxes for 1920, which were assessed and paid and from which no appeal was taken.  On April 10, 1926, he mailed to her a second notice of deficiency of $9,730.20 in income taxes for 1920, and on the same date mailed Hickman a notice of deficiency of $9,730.21 in income taxes for 1920, which notices are the bases of these proceedings.  OPINION.  STERNHAGEN: Before considering the merits of any tax liability which may have existed in respect of 1920 against Fannie Snyder Hickman, it is necessary to determine whether the statutory period of limitations in respect thereof has expired, as contended by the petitioner. 1931 BTA LEXIS 1643">*1649  The original return was a joint return filed for husband and wife on March 8, 1921.  It is well established that despite the fact that separate returns were later filed, the filing of this original joint return fixed the starting point of the statutory period of limitations.  ; . The tax being for 1920, it was imposed by the Revenue Act of 1918, and the period within which assessment and collection thereof were required to be made by the Commissioner was five years, Revenue Act of 1926, sec. 277(a)(3).  Hence the statutory period expired before March 8, 1926, and the determination made by the respondent in this case on April 10, 1926, was too late.  The respondent, however, argues that because an earlier notice of deficiency had been mailed August 4, 1924, his time to assess was extended by 60 days, until May 7, 1926, making timely the determination in April.  This contention is in all essential respects the same as that rejected by the Board in 1931 BTA LEXIS 1643">*1650 . The respondent cites , reconsidered in , but that case is readily distinguishable.  It involved the period within which the respondent could proceed against a transferee in respect of the liability for a deficiency 24 B.T.A. 438">*442  determined against the transferor, assessed after five years but within five years and 60 days from the time the return was filed.  In the case at bar the first deficiency of 1924 had been both assessed and paid, so as to dispense with the occasion for extending the Commissioner's time to enforce it; and under such circumstances it was held in , that there was no need for an extension of the five-year period by 60 days and no reason to construe the statute so as to permit a second deficiency determination after the original five-year period had expired.  Accordingly, as to this petitioner judgment of no deficiency will be entered.  As to the husband, O. L. Hickman, petitioner in Docket No. 16254, no contention is made in respect of the statute of limitations.  He contends that by the gift to his wife1931 BTA LEXIS 1643">*1651  of April 19, 1920, he divested himself of all interest in the remaining 40 acres of the Norton lease and therefore that no part of any gain realized upon the disposition thereof to the corporation could be attributable or taxable to him.  He also, in the alternative, attacks the respondent's use of the par value of the stock as representing fair market value when received in determining the gain or loss from its disposition.  The petitioner's contention that he gave to his wife for her separate property his entire interest in the 40 acres is, in our opinion, not in accordance with the instrument of gift nor with the petitioner's own intention and understanding in respect of such gift at the time he made it.  He said that he did not intend to give his wife more than half of their undivided half interest in the 40 acres.  The gift instrument, in our opinion, gives her for her separate use one-half of the interest which they both theretofore had owned in community.  ; ; 1931 BTA LEXIS 1643">*1652 . This left the remaining half of their interest as continuing to be held by them in community.  Thus the petitioner remained the owner of a community interest in one-fourth of the 40 acres, which community interest was an undivided half in such one-fourth.  In other words, of the 40 acres, one-half was never owned by the petitioners and need not be considered; and of the remaining one-half, Mrs. Hickman, by virtue of the gift, became the separate owner of one-fourth while the husband and wife together continued to remain the community owners of the remaining fourth.  If, therefore, it had been necessary to ascertain a cost basis to be used in determining the gain of the husband from his sale of property, such cost would be ascertainable by attributing to him one-fourth of the half interest originally owned by him and his wife.  But since the petitioner has already written off his cost in prior years, as stipulated 24 B.T.A. 438">*443  by the parties, and as a result the entire amount received by him must be taken as gain, it is unnecessary to consider the proportionate distribution of cost resulting from the gift.  Suffice it to say that the1931 BTA LEXIS 1643">*1653  husband did not, by the gift, part with his entire interest, but retained a substantial property interest in the said lease, which interest he sold to the corporation, and whatever he derived therefrom was gain taxable to him.  From the evidence it appears that he received one-half of the cash of $12,000, and 15,492 shares the value of which may be taken to be $5 per share, because the respondent so determined and the corporation's appraisal committee also substantially recognized this value and there is no countervailing evidence.  There were also received notes of a face value of $8,350, the distribution of which does not clearly appear in the evidence, nor does it appear how this was treated by the respondent in the determination of this petitioner's deficiency.  Hickman, in his testimony, spoke of receiving cash of $32,000, thus indicating that he regarded the notes as cash, of which he got half.  We may fairly assume, therefore, that these notes were also equally divided, so that Hickman received half or $4,175.  Thus the total he received from the sale to the corporation was the aggregate of $12,000 cash, $77,460 stock, and $4,175 notes, or $93,635.  1931 BTA LEXIS 1643">*1654  But Hickman's entire interest in the 40 acres was, as we have seen, represented by his share of the community property, so that all that he received in the Sakaba sale was received by him in behalf of the community.  This was properly taxable one-half each to himself and his wife.  . Hickman, therefore, must be regarded as having realized a gain from the Sakaba sale of $46,817.50. Within the year, Hickman, still acting in behalf of the community, sold 14,400 shares out of the 15,492 which the community had theretofore received.  For these 14,400 shares, the community received $16,200, thus realizing a community loss of $55,800.  Half of this, or $27,900, Hickman is entitled to treat as a deduction.  Respondent has admitted that the petitioner is individually entitled to a loss, heretofore disallowed, of $13,501.45 in respect of the drilling of dry holes and the expiration of leases.  Readjustment of the deficiency will, therefore, take this further deduction into account.  In Docket No. 16253 judgment of no deficiency in respect to Fannie Snyder Hickman will be entered.  In Docket No. 16254 judgment will be entered under Rule1931 BTA LEXIS 1643">*1655  50.