Bank of California v. Commissioner ( 1932 )

THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION, EXECUTOR FOR THE ESTATE OF ALEXANDER HEYMAN, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Bank of California v. Commissioner

Docket No. 38962.

United States Board of Tax Appeals

25 B.T.A. 179; 1932 BTA LEXIS 1564;

January 14, 1932, Promulgated

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The deposit certificates and accrued interest herein involved having been included at their fair market value as of the date of decedent's death in the taxable estate and the tax thereon paid, no income accrued to the estate on the occasion of the subsequent payments here involved.

H. F. Shaw, Esq., for the petitioner.

F. R. Shearer, Esq., for the respondent.

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VAN FOSSAN

This proceeding was brought to redetermine the deficiency in income tax of the petitioner for the year 1926 in the sum of $4,113.33.

The alleged deficiency arose from the failure of the petitioner to include in its income-tax return the sum of $32,906.62 representing the portion of profit in a payment of $50,504.55 made in 1926 by the General Petroleum Corporation under a contract entered into between it and Alexander Heyman, governing the sale of certain securities. The petitioner further asserts that it erroneously included in its income-tax return for the year 1926 the sum of $4,375.84 which it received as interest on securities, accrued at the time of Heyman's death on December 12, 1925, and that the respondent denied its request for overassessment.

All of the facts were either admitted or stipulated by the parties.

FINDINGS OF FACT.

On March 1, 1924, and over two years prior thereto, Alexander Heyman owned 101,009-1/11 shares of the common stock of the Midway Oil Company, a California corporation. On that date Heyman entered into an agreement with the General Petroleum Corporation, a California corporation, to sell to it his holdings in the Midway Oil Company at $2.85 per share, on the following terms: Heyman was to receive 25 cents per share upon the deposit in escrow of not less than two-thirds of the outstanding shares of the Midway Oil Company stock; 25 cents per share within 30 days thereafter; 50 cents per share on or before March 1 in each of the years 1925, 1926, 1927 and 1928, and 35 cents per share on or before March 1, 1929, with interest on the deferred payments at the rate of 6 per cent per annum from March 1, 1924, payable semiannually. The stock so sold was to be placed in escrow with The Bank of California, National Association, and was not to be released until fully paid for by the General Petroleum Corporation. The agreement also contained the following pertinent provisions:

* * * The Bank of California, National Association, will issue to each of the Sellers a deposit certificate evidencing the deposit of his shares in accordance with the terms of this agreement, and reciting that the Seller is entitled to the installments of principal and interest as the same shall be paid by the Buyer. Said deposit certificates shall be transferable by endorsement and delivery, but said Bank shall not be required to recognize any transfer until the endorsed certificate is surrendered to said bank and a new deposit certificate issued to the transferee in lieu thereof.

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By this agreement, each of the Sellers does hereby make, constitute and appoint the buyer his proxy to vote all stock outstanding in his name on the books of the Midway Oil Company. This proxy shall be irrevocable so long as the Buyer shall not be in default hereunder, but if the Buyer shall be in default, said proxy shall ipso facto terminate.

During his lifetime Heyman received the above described installment payments due in the years 1924 and 1925, with interest due to September 1, 1925. Electing to report the gain on the installment plan, he reported a gain of $32,906.62 in each year for income-tax purposes. That sum was correctly computed.

On December 12, 1925, Heyman died and the petitioner was duly appointed the executor of his estate. The respondent appraised the estate at a net value of $315,406.19 and assessed thereon a tax of $6,087.19, which was duly paid. The respondent appraised as a part of the decedent's estate a deposit certificate for 101,009-1/11 shares of the Midway Oil Company stock at $1.85 per share, or $186,866.62, with accrued interest thereon from September 1, 1925, to December 12, 1925, amounting to $3,176.74. The respondent admits that the sum named is the fair market value of such certificate and interest thereon at the date of Heyman's death. The respondent also appraised certain other securities on which interest aggregating $1,199.10 had accrued, and included such interest in the decedent's estate. Of the said $1,199.10 the sum of $1,101.43, together with the $3,176.74 above mentioned, or a total of $4,278.17, was included by the petitioner as income in its return for the year 1926.

During the year 1926 the petitioner received the sum of $50,504.55 as an installment payment pursuant to the contract of March 1, 1924. Of that sum, $32,906.62 represented profit on the sale of the decedent's share of Midway Oil Company stock.

The following stipulation was made:

The parties stipulate that the amount of $32,906.62 treated by the Commissioner as income subject to taxation at capital net gain rates is the correct amount of income reflected in the total amount received during the year 1926, namely, $50,504.55, provided that, as a matter of law, the executor is required to ascertain and compute gains on the realization and/or the disposition of the deposit certificates for 101,009.1 shares of Midway Oil Company at the cost or March 1, 1913 value to the decedent, Alexander Heyman.

The petitioner paid the Federal estate tax on the fair market value of the deposit certificate for the Midway Oil Company stock and on interest amounting to $4,278.17, accrued to December 12, 1925, on said certificate and also from other securities belonging to the decedent's estate. The petitioner paid the income tax for the year 1926 on the said items of accrued interest aggregating $4,278.17.

OPINION.

VAN FOSSAN: The facts in this case bring it squarely within the principles underlying the cases of ; ; ; ; ; ; and other cases to the same effect.

The deposit certificates for 101,009-1/11 shares of Midway Oil Company stock with interest thereon accrued to date of decedent's death and interest accrued to such date on other securities having been appraised as assets of the estate of decedent at their fair market value at the date of his death, included in the taxable estate for estate-tax purposes and the tax paid thereon, no income accrued to the estate on the occasion of the payments here involved.

Decision will be entered under Rule 50.