Budd v. Commissioner , 12 B.T.A. 490 ( 1928 )

EDWARD G. BUDD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Budd v. Commissioner

Docket No. 12414.

United States Board of Tax Appeals

12 B.T.A. 490; 1928 BTA LEXIS 3525;

June 8, 1928, Promulgated

---

Purported sale of stock held not bona fide.

Henry S. Drinker, Jr., Esq., and Leslie M. Swope, Esq., for the petitioner.

Harold Allen, Esq., for the respondent.

---

SIEFKIN

This is a proceeding for the redetermination of a deficiency in income taxes for the year 1921 in the amount of $55,980.87. The only issue is whether a sale of certain shares of stock was a bona fide sale and resulted in a loss of $90,000.

FINDINGS OF FACT.

On February 2, 1920, the petitioner purchased 7,500 shares of preferred stock of the Budd Wheel Co. at $100 a share, for the total price of $750,000. On November 15, 1921, the petitioner assigned 3,000 of said shares to William B. Read and took Read's note for $210,000, payable February 1, 1922, with interest at 6 per cent per annum. The note had attached the requisite documentary stamps which were canceled and the stock certificates were exchanged for new ones in Read's name. Such new certificates were delivered to Read. Subsequently Read sold 660 of said shares to one Campbell, deposited the proceeds in his bank account and gave Budd his personal check for the same amount. Budd made no endorsement of such payment on Read's note. On February 17, 1923, Read transferred to Budd the 2,340 shares remaining and Budd delivered Read's note to him. Read paid no interest on the note at any time. The stock which was the subject of the successive transfers contained a provision for cumulative 8 per cent dividends. No dividends were paid to Read during the time he held the stock. The transfer to Read was made with the purpose on the part of Budd of realizing a loss for the purpose of income taxes. Read knew this at the time he received the stock. The petitioner and Read had been close friends and business associates for many years.

The transfer of the stock by the petitioner to Read in 1921 was not bona fide.

OPINION.

SIEFKIN: This proceeding requires a decision as to whether the transfer from the petitioner to his friend and business associate, Read, was a valid, bona fide transaction or a false face for the United States. Both the petitioner and Read testified in unequivocal terms that there was no understanding or agreement whatever that the transfer was anything other than an absolute sale. The actions of the petitioner and Read, however, lead us to a different conclusion and we have held that the transfer was not bona fide. The testimony of the petitioner and Read seriously contrasts with the circumstances under which the stock was transferred, held and retransferred, and the testimony leaves unexplained circumstances which lead us to our conclusion, notably the sale by Read of a portion of the stock and the payment by him of the same amount to the petitioner. It may be that a full explanation of these facts by the parties who knew most about them would remove our doubts, but the witnesses, intelligent business men, represented by fully competent counsel, were led through a narrow line of testimony and were exceedingly vague and forgetful upon matters which we feel would shed light upon the transaction. We conclude that the petitioner has not met the burden of showing the respondent's determination to be erroneous and that the evidence introduced indicates the correctness of such determination.

Reviewed by the Board.

Judgment will be entered for the respondent.