Blanke v. Commissioner , 12 B.T.A. 833 ( 1928 )

C. F. BLANKE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Blanke v. Commissioner

Docket No. 12047.

United States Board of Tax Appeals

12 B.T.A. 833; 1928 BTA LEXIS 3455;

June 25, 1928, Promulgated

---

">*3455 1. Evidence held insufficient to show that the respondent's determination of deficiencies resulted from errors alleged as to inclusion of certain amounts in income.

2. Evidence held insufficient to prove loss upon transfer of stock to petitioner's wife in 1921.

L. D. Slattery, Esq., for the petitioner.

J. E. Marshall, Esq., for the respondent.

---

SIEFKIN

">*833 This is a proceeding for the redetermination of deficiencies in income taxes for 1920 and 1921 of $12,749.15 and $8,952.62, respectively. The petitioner alleges (1) that the respondent erred in adding $26,000 to the petitioner's income in 1920 and $10,000 in 1921, the petitioner contending that such amounts were loans, and (2) that the respondent erred in disallowing a deduction of $37,500 as a loss upon the sale of stock in 1921. An error alleged as to the disallowance of a deduction for interest was abandoned by the petitioner at the hearing.

FINDINGS OF FACT.

The petitioner is an individual having his office in St. Louis, Mo. He was at one time president of the C. F. Blanke Tea & Coffee Co. and is now chairman of the board of that company.

During the year 1920">*3456 petitioner received from his wife amounts totaling between $11,000 and $12,500, which were immediately put into the C. F. Blanke Tea & Coffee Co. No note was given by the petitioner to his wife for this loan. The wife is not wealthy. For the last 38 years she has been saving and economizing and has built up a savings account. She has also had some income from her relatives. The petitioner transferred on August 30, 1921, to his wife, in repayment of the loan, his own personal stock in the C. F. Blanke Tea & Coffee Co. of the par value of $50,000. Both the petitioner and his wife have accounts on the books of the C. F. Blanke Tea & Coffee Co. and at the time of the transfer of the stock the petitioner's account was credited with $12,500 and the wife's account was charged with $12,500. Three stock certificates were surrendered by the petitioner and were issued to his wife. These totaled 500 shares. These certificates had been issued to the petitioner on December 30, 1918, out of the treasury stock of the company, $50,000 was charged to his account and the treasury stock account was credited with that amount. They remained in his name until transferred ">*834 to his wife">*3457 in 1921. The certificates are still in the name of Mrs. C. F. Blanke. The petitioner does not remember the amount of stock which he owned at the time the transfer was made but the transfer of 500 shares did not take all the stock which he owned.

In December, 1920, the petitioner deposited in his account at the Liberty Central Bank an item of $16,000. This money was received from his brother, R. H. Blanke, who is president of the C. F. Blanke Tea & Coffee Co. He also received from his brother the amount of $10,000 in 1920. There was no understanding that the petitioner would repay these amounts at any time. In December, 1921, the petitioner also deposited $10,000 in his bank account at the National City Bank. This was also received from his brother. The petitioner, in repayment of this amount, gave his brother, in 1921, an interest in his building at 14th & Penn. This was a building occupied by the C. F. Blanke Tea & Coffee Co. which the petitioner had acquired in either 1919 or 1920 for $260,000. The terms of the purchase were $60,000 cash and deferred payments in the amount of $30,000 per year. The petitioner had spent between $150,000 and $200,000 putting the building">*3458 in condition for the business.

In 1926 the petitioner's brother had to leave town on account of illness, needed some money and drew out of his account $7,000. The petitioner transferred this amount from his own account. The petitioner's brother does not remember the dates upon which the amounts were given to petitioner and no books were ever kept showing a record thereof. Only a part of the amount received by petitioner from his brother was entered on the books of the corporation. The amounts paid by the petitioner's brother to the petitioner were paid by check from an account which was in the name of the petitioner. The brother does not have those checks.

There was no trust agreement between the petitioner and his brother. Due to family reasons the petitioner's brother has never held much property in his own name. The petitioner's brother is considered well to do financially. The amount of $16,000 received by petitioner from his brother represented savings of the brother from the time he started to work and were accumulated from various sources including insurance policies.

In 1920 the petitioner's brother was secretary and treasurer of the C. F. Blanke Tea & Coffee">*3459 Co. and he also received a salary from the St. Louis Canning Co.

On the capital-stock-tax return of the C. F. Blanke Tea & Coffee co. for the year 1921 a deficit of $238,000 was shown. The return also shows that the value of the stock outstanding at that time was $334,200 and that in 1921 the company lost $18,762.28. The books of the company do not show a deficit.

">*835 The petitioner, on his return for 1921, deducted $37,500 as a loss upon the sale of stock. The respondent, in determining the deficiency for 1921, disallowed such deduction.

OPINION.

SIEFKIN: The foregoing findings of fact constitute all the facts that we can find from the record in this proceeding, and contain a number of statements which might more properly be termed assumptions of fact or conclusions. The allegations of the petitioner that the Commissioner added the amounts of $26,000 and $10,000 to the petitioner's income in the years 1920 and 1921, having been denied, it was incumbent upon the petitioner to show that such amounts were in fact added and reflected in the deficiencies in question. This was not done and for that reason alone we would be required to approve the action of the respondent">*3460 upon that issue. Our decision need not rest upon that reason, since we would be led to the same result, because of the vague, contradicting and unsatisfactory nature of the evidence introduced to show that these amounts were loans to the petitioner from his brother.

The second issue relates to an alleged loss of $37,500 on the transfer of certain stock to the petitioner's wife in 1921. The pleadings and evidence show that this amount was disallowed as a loss by the respondent and was reflected in the deficiency for 1921. The evidence also shows that in 1918 the petitioner acquired 500 shares of the treasury stock of the C. F. Blanke Tea & Coffee Co. and his account was charged with $50,000 on the books of the company. It also shows that in 1921, to repay his wife for loans in 1920 of between $11,000 and $12,500, the petitioner assigned the stock to her and that concurrently entries were made upon the books of the company crediting the petitioner's account with $12,500 and charging his wife's account with $12,500. Thus, if the testimony means anything, it shows that the petitioner received cash of $11,000 to $12,500 as well as a credit of $12,500 in exchange for stock for which">*3461 his account had been charged with $50,000 and his loss, if any, certainly does not exceed $26,500. The testimony on this point, however, is also conflicting and doubtful and we are not satisfied that any loss was in fact sustained. The relationship of husband and wife and the close relationship of this petitioner to the corporation leave considerable doubt as to whether the stock was transferred to the petitioner's wife in complete satisfaction of both the amount of the loan (the amount of which is indefinite) and the credit to the petitioner, or either, or whether the parties contemplated further loans or payments from the wife.

Judgment will be entered for the respondent.