Collins v. Commissioner , 16 B.T.A. 1426 ( 1929 )

FRED J. COLLINS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Collins v. Commissioner

Docket No. 26672.

United States Board of Tax Appeals

16 B.T.A. 1426; 1929 BTA LEXIS 2379;

July 25, 1929, Promulgated

---

">*2379 Amount of income received by the petitioner in 1922 from the transaction involved herein, determined.

John E. Hughes, Esq., and William Cogger, Esq., for the petitioner.

Arthur Carnduff, Esq., for the respondent.

---

MARQUETTE

">*1426 This proceeding is for the redetermination of a deficiency in income tax asserted by the respondent for the year 1922 in the amount of $843.25. The petitioner alleges that the respondent erred in determining that the petitioner realized income in the amount of $12,500 in the year 1922 from the transaction hereinafter described.

FINDINGS OF FACT.

The petitioner is an individual residing at Amsterdam, N.Y.

In the year 1920 the petitioner and one Hazzard formed a corporation, with an authorized capital of $125,000, for the purpose of operating an amusement park. The corporation was called the Mid-City Park Corporation. The petitioner, who was experienced in managing and conducting such enterprises, was employed by the corporation to manage its business. By the terms of his contract the petitioner was to receive in 1920 the amount of $1,600 in cash and stock in the corporation of the par value of $2,500, ">*2380 and each year ">*1427 thereafter he was to receive $3,000 in cash and $5,000 par value of the corporation's capital stock until he should have thus acquired one-half of the entire capital stock of the corporation. Hazzard was to have issued to him each year the same amount of stock that was issued to the petitioner. All of the money necessary to start the enterprise was furnished by Hazzard. As part of the compensation for his services to the corporation the petitioner received in 1920, stock of the par value of $2,500; in 1921, stock of the par value of $5,000; and in 1922, stock of the par value of $5,000.

In the year 1922 the petitioner and Hazzard disagreed relative to the policy of managing the Mid-City Park Corporation, and the corporation and the petitioner by agreement terminated the petitioner's contract of employment. By the terms of the settlement the petitioner received $12,500 in cash and in exchange he returned to the corporation the stock he had heretofore received.

The fair market value of the capital stock of the Mid-City Park Corporation when it was received by the petitioner was equal to its par value.

The petitioner in his income-tax return for">*2381 1922 reported a gain of $12,500 from the sale of his shares of the capital stock of the Mid-City Park Corporation, and claimed a loss of $7,500 on the cancellation of his contract of employment. The respondent disallowed the deduction.

OPINION.

MARQUETTE: It is contended on behalf of the petitioner that he was wrongfully advised to report in his return for 1922 that he had realized a gain of $12,500 from the sale of his stock in the Mid-City Park Corporation, and had sustained a loss on the cancellation of his contract of employment, but that, although the method of reporting was erroneous, the result reached was correct, in that the petitioner's income from the transaction was only $5,000 in the year 1922. The petitioner's counsel concede that the contract of employment had no value, and that the petitioner sustained no loss on its termination.

We are of opinion that the petitioner's contention is well taken and should be sustained. The evidence is clear that in 1920 and 1921 he received as part of the compensation for his services, stock of the Mid-City Park Corporation of the par value of $7,500, and we are satisfied that the stock had a fair market, or actual cash value">*2382 at that time equal to its par value, and to that extent was income to the petitioner when he received it. He also received stock of the par value of $5,000 in 1922, and in the same year, upon cancellation of his contract of employment, he returned to the corporation all of the stock in exchange for $12,500 in cash. On the record it is evident that the petitioner's income for 1922 from this transaction was only $5,000.

Judgment will be entered under Rule 50.