Staley v. Commissioner , 15 B.T.A. 625 ( 1929 )

PAUL A. STALEY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Staley v. Commissioner

Docket No. 16719.

United States Board of Tax Appeals

15 B.T.A. 625; 1929 BTA LEXIS 2822;

February 26, 1929, Promulgated

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">*2822 Prior to 1917 petitioner owned preferred stock of A corporation, which owned the common stock of B corporation. On the dissolution in 1917 of A corporation petitioner received common stock of B corporation, which he sold in 1920. Held, that the cost of the stock of A corporation is not the basis on which gain or loss is to be determined on the sale of the stock of B corporation. Marr v. United States,263 U.S. 536">263 U.S. 536.

Paul A. Staley pro se.

Arthur Carnduff, Esq., for the respondent.

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PHILLIPS

">*625 The Commissioner determined a deficiency of $818.66 in income tax for 1920 which he assessed under the provisions of section 279(a) of the Revenue Act of 1926. The petitioner instituted a proceeding for the redetermination of the deficiency. This proceeding was submitted to the Board upon the pleadings from which the Board makes its findings of fact.

FINDINGS OF FACT.

On March 1, 1913, the petitioner was the owner of 50 shares of preferred stock of the Ohio Cement Co., whose name had been changed in 1912 to the Puritan Co. The fair value of this stock on March 1, 1913, was $5,000.

Petitioner purchased this stock">*2823 direct from the Ohio Cement Co., paying therefor in cash the sum of $5,000, the last purchase being in the latter part of July, 1911.

The Ohio Cement Co. (the Puritan Co.) was a holding company whose assets consisted in the entire capital stock of several subsidiary companies, to wit, the Puritan Brick Co., the Puritan Iron Co., and the Puritan Cement Co.

The Puritan Brick Co. owned and held the title to all of the tangible property, including several hundred acres of land, a brick plant, railroad, etc., in the southern part of Ohio, and was apparently the only subsidiary company conducting any substantial operations.

In 1917, by resolution of the directors approved by the stockholders, the parent company (the Puritan Company) a West Virginia corporation, was dissolved and its assets in the form of stock of the Puritan Brick Co. (which owned all of the tangible assets) was distributed to the holders of the preferred stock of the Puritan ">*626 Co., formerly the Ohio Cement Co., share for share, and petitioner's investment by this distribution was represented by 50 shares of stock of the Puritan Brick Co.

In the summer of 1920 petitioner received quotations from a Boston">*2824 broker offering $3 a share for the stock of the Puritan Brick Co. and in the year 1920 disposed of the 50 shares of the Puritan Brick Co. stock for a consideration of $250.

Upon his income-tax return for 1920 petitioner claimed a loss of $4,750, which was not allowed by the Commissioner.

OPINION.

PHILLIPS: The petitioner claims to have sustained a loss in 1920 upon the sale of 50 shares of stock of the Puritan Brick Co. The stock of this company was received by the petitioner in 1917 upon liquidation of the Puritan Co. The real question in the case is whether the cost of the stock of the Puritan Co. (at one time known as the Ohio Cement Co.) can be used as the basis for determining the gain or loss on the sale of the stock of the Puritan Brick Co.

The petitioner claims that the liquidation of the Puritan Co. did not change his interest in the business conducted by the two corporations; that there was merely a reorganization which amounted to no more than a change of name and that this proceeding is governed by . The facts are too meager to demonstrate that such is the case. Such facts as there are tend to show the contrary. ">*2825 Instead of continuing as a preferred stockholder, petitioner appears to have become the owner of common stock. Instead of continuing to have the rights and privileges of a preferred stockholder, he received the rights and privileges of a common stockholder. This fact alone would in our opinion be sufficient to bring the case within the later decision of the Supreme Court in . That which the petitioner sold in 1920 was not that which he had purchased prior to 1913. The basis for determining any gain or loss from the sale in 1920 would be the value of the stock received in 1917. The record contains no evidence of such value, the petitioner relying upon his contention that the cost or March 1, 1913, value of the stock of the Puritan Co. was controlling.

Decision will be entered for the respondent.