Keeley v. Commissioner , 15 B.T.A. 804 ( 1929 )

RICHARD T. KEELEY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

ELIZABETH K. ANDERSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Keeley v. Commissioner

Docket Nos. 9223, 9435.

United States Board of Tax Appeals

15 B.T.A. 804; 1929 BTA LEXIS 2785;

March 12, 1929, Promulgated

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1. When property, acquired by gift subsequent to January 1, 1921, was sold by the donee in that year for an amount in excess of the cost to the donor, the taxable profit is the difference between the selling price and the cost to the donor. Section 202(a)(2), Revenue Act of 1921.

2. The provisions of section 202(a)(2), Revenue Act of 1921, are constitutional. Taft v. Bowers,278 U.S. 470">278 U.S. 470.

E. E. Reichert, C.P.A., and Perry A. Sletteland, Esq., for the petitioners.

A. L. Deveney, Esq., for the respondent.

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PHILLIPS

The Commissioner determined deficiencies in income tax for 1921 against Richard T. Keeley of $4,983.46 and against Elizabeth Keeley Anderson of $2,239.71. The petitioners instituted proceedings before the Board for the redetermination of such deficiencies, alleging error in determining the gain derived from the sale of stock of the Keeley-Neckerman Co.

FINDINGS OF FACT.

On August 8, 1921, Kate M. Keeley was the owner of 880 shares of the 900 shares outstanding of the capital stock of the Keeley-Neckerman Co., a corporation organized and existing under the laws of the State of Wisconsin. The said Kate M. Keeley acquired said 880 shares of capital stock in the following manner:

160 shares on October 12, 1907, by subscription.

100 shares on March 3, 1916, by inheritance.

150 shares on August 23, 1916, by purchase.

20 shares on June 2, 1917, by purchase.

450 shares on April 29, 1921, by purchase.

On August 8, 1921, Kate M. Keeley made a bona fide gift of 600 shares of said stock in equal proportions, namely, 300 shares to Richard T. Keeley and 300 shares to Elizabeth Keeley Anderson, the petitioners herein.

On January 2, 1915, Elizabeth K. Anderson acquired 10 shares of the capital stock of Keeley-Neckerman Co. by bona fide gift.

On November 23, 1921, Richard T. Keeley was the owner of 300 shares of the outstanding capital stock of the Keeley-Neckerman Co.; on November 23, 1921, Elizabeth K. Anderson was the owner of 310 shares of the outstanding capital stock of said company.

The fair market value on March 1, 1913, of the 160 shares acquired by Kate M. Keeley, donor, prior thereto, $190was per share. The fair market value on March 3, 1916, of the 100 shares acquired by Kate M. Keeley, donor, by inheritance was $190 per share. The cost on August 23, 1916, of the 150 shares acquired by Kate M. Keeley, donor, by purchase, was $180 per share. The cost on June 2, 1917, of the 20 shares acquired by Kate M. Keeley, donor, by purchase, was $57.50 per share. The cost on April 29, 1921, of the 450 shares acquired by Kate M. Keeley, donor, by purchase, was $251.7878 per share. The fair market value on January 2, 1915, of the 10 shares acquired by Elizabeth K. Anderson by gift was $190 per share.

The cost or fair market value to Kate M. Keeley, donor, of the 600 shares acquired by Richard T. Keeley and Elizabeth K. Anderson by gift on August 8, 1921, was $200.59 per share.

The fair market value on August 8, 1921, of the 600 shares acquired by Richard T. Keeley and Elizabeth K. Anderson by gift on that date was $346.01 per share.

On November 23, 1921, Richard T. Keeley sold the 300 shares of stock owned by him at the price of $318.34 per share. On November 23, 1921, Elizabeth, K. Anderson sold the 310 shares of stock owned by her at the price of $318.34 per share.

The Commissioner determined that the cost of such stock to Kate M. Keeley, donor, was $187.7958 per share and computed the gain to the petitioners from the sale of each share received from such donor as the difference between the price at which such stock was sold by petitioners and $187.7958 per share.

OPINION.

PHILLIPS: The petitioners in each of these two proceedings raise only the question of the amount of taxable gain derived from the sale of certain stock of the Keeley-Neckerman Co. While the petitioners raised issues with respect to the value of this stock on certain dates, those issues have been disposed of by stipulation, leaving for consideration only the question which arises by reason of the action of the Commissioner in following section 202(a)(2) of the Revenue Act of 1921, which provided that the basis for ascertaining the gain derived or loss sustained from a sale of property shall, in the case of property acquired by gift after December 31, 1920, be the same as that which it would have been in the hands of the donor. In these proceedings it appears that each of these petitioners received 300 shares of the stock in question after December 31, 1920, and that under the terms of the statute the basis for computing the gain derived from the sale of that stock in 1921 would be $200.59 per share, the cost to the donor, and not $346.01 per share, the market value on the date the property was transferred by the donor to the petitioners. It was urged by the petitioners that the provision of the statute under which the Commissioner acted is unconstitutional and that the taxable gain to the petitioners from the sale of the 300 shares received by each of them as a gift could not exceed the difference between the sale price and the value at the date of gift. Since these cases were heard this question has been decided contrary to the contentions of the petitioners. . Under that decision it follows that the taxable gain is the difference between the selling price and the basis which would have been used by the donor had the donor made the sale.

The deficiencies should be recomputed in accordance with that decision and upon the basis of the costs and values set out in the findings of fact.

Decision will be entered under Rule 50.