DocketNumber: Docket No. 71903.
Citation Numbers: 35 B.T.A. 195, 1936 BTA LEXIS 552
Judges: Arundell
Filed Date: 12/18/1936
Status: Precedential
Modified Date: 1/12/2023
*552 The owner of shares of stock, holding the certificates in a safety deposit box, directed the sale of the shares on December 30, 1930, and the broker sold them on that date. Delivery of the certificates was made on January 2, 1931.
*195 A deficiency in income tax in the amount of $1,316.51 for the year 1930 was determined by the respondent as the result of adjustments of losses claimed on the sale of three blocks of corporate stocks. The issue as to one block is whether or not a loss was sustained, and as *196 to the other two whether losses admittedly sustained are deductible in the taxable year. The facts were stipulated.
FINDINGS OF*553 FACT.
Petitioner, an individual, resides in Detroit, Michigan.
In August 1929 the petitioner purchased through a brokerage firm in Detroit 50 shares of stock in Fourth National Investors for $3,058.75. She sold the stock in June 1930, through a New York brokerage firm, for $1,571.25. On this sale the petitioner sustained a loss, deductible in 1930, in the amount of $1,487.50.
In December 1930 petitioner had in her safety deposit box 100 shares of common stock of Westinghouse Electric and 100 shares of stock of the United States Steel Corporation. On December 30, 1930, she directed a brokerage firm to sell both blocks, and at the same time she informed the brokers that the stock was in the safety deposit box and that she would deliver it immediately after the holidays. Both blocks were sold by petitioner through the brokerage firm on December 30, 1930. The petitioner did not go downtown in Detroit to the safety deposit box until January 2, 1931, and on that date she took from the box the certificates for the shares sold and delivered them to the brokers.
Petitioner sustained a loss of $9,372 on the Westinghouse stock, and a loss of $4,755.50 on the United States Steel*554 stock. She sold the stock on December 30, 1930, for the purpose of establishing her loss in the year 1930.
OPINION.
ARUNDELL: The loss claimed on the sale of Fourth National Investors stock was disallowed solely because of petitioner's inability to substantiate cost and sales price figures at the time her return was audited. These figures were supplied at the hearing, and we have found them as facts with the amount of resulting loss which is deductible in 1930.
There is no issue as to the amount of the losses sustained on the Westinghouse and United States Steel stocks; the controversy is as to the year in which the losses are deductible. They are claimed as deductions for 1930. The respondent disallowed them as 1930 deductions, taking the position, as we understand it, first, that the sales were short sales and not covered until 1931, and, second, that if not short sales they were nevertheless not completed in 1930 because of petitioner's failure to deliver stock certificates in that year.
The first proposition is unsound. "A short sale is a contract for the sale of shares which the seller does not own or the certificates *197 for which are not within his control*555 so as to be available for delivery at the time when, under the rules of the Exchange, delivery must be made."
Respondent's second proposition brings us into a field in which there is some confusion among the cases. His claim is that section 9520 of the Michigan Compiled Statutes of 1929 requires delivery of the certificates to complete the sale. That section, and those immediately following it enact into the Michigan statutes the provisions of the Uniform Stock Transfer Act, which has been adopted in twenty some states. That section, so far as material here, provides:
9520 Section 1.
(a) By delivery of the certificate indorsed either in blank or to a specific person * * *, or
(b) By delivery of the certificate and a separate document containing a written assignment of the certificate or a power of attorney to sell, assign, or transfer the same or the shares represented thereby * * *.
The Michigan statutes also contain, like those of many other states, the provisions of the Uniform Sales Act, among which are the following, as numbered in Michigan Compiled Statutes of 1929:
9457 Section 18.
(2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties, usages of trade and the circumstances of the case.
9458 Section 19.
Rule 1. Where there is an unconditional contract to sell specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment, or the time of delivery, or both, be postponed.
The presence of the above provisions in the same statute books has given rise to the question of whether corporate stocks are subject to the provisions of the Uniform Sales Act (Sales of Goods Act it is called in some states), or whether they are in all respects governed *198 by the Uniform Stock Transfer Act. No uniform rule has been laid down by the courts in the various jurisdictions. In
* * * The question whether shares of stock are "goods" within the meaning of the Sales Act has long been the subject of controversy.
Williston and Benjamin both hold that shares of corporate stock do not fall within the definition of "goods" laid down in the Sales Act. Williston, Sales, Section 619; Benjamin, Sales (5th Ed.) p. 173.
In some jurisdictions it has been expressly held that shares of stock are not subject to the Sales Act.
In concluding the opinion the court refers to an earlier New York case,
* * * The decision in
In affirming
* * * a strong argument may be made that the Legislature did not intend to include certificates of stock in its definition of "goods." Assuming that to be true, yet the fact remains that certificates of stock, like*560 other "goods", are freely bought hand to hand, and analogy so complete may dictate that the rules governing sales be applied alike to "goods" and other personal property freely bought and sold and passing from hand to hand.
In Louisiana the Uniform Stock Transfer Act was enacted in 1910. The limited purpose of section 1, prescribing how title may be transferred, is described by the Supreme Court of that state in
The statute does not undertake to prescribe an exclusive mode of evidencing as between the parties a sale of stocks; its object is merely to regulate the mode of transfer upon the books of the corporation and to furnish a rule for deciding between claimants contesting over the ownership of the stock.
*199 From a consideration of the above cases it seems to us sound to conclude that the Uniform Stock Transfer Act is not intended to prescribe an exclusive method for transferring property in shares of stock and that the question of when the property passes may be determined under the provisions of the Uniform Sales Act (Sale of Goods Act). The courts of Michigan do not appear to have*561 passed on this question, although it has been held in that State that corporate stock is "goods" within the statute of frauds.
The Circuit Courts of Appeal have reached the same conclusion in cases very close on their facts to this one arising in jurisdictions where both of the Uniform Acts above quoted are in effect. In
* * * Losses must be realized before they are deductible.
In
* * * In the present case, the failure to deliver appears to have been without substantial significance. In all substantial respects the transaction was complete and petitioner had realized the results of his purchase and sale as completely as he ever would.
The Circuit Court, in affirming the Board, referred to the provisions of the Sales Act of Pennsylvania and the Uniform Sales Act that "the intention of the parties governs" and quoted the provisions of rule 1 for ascertaining intention under the Sales Act, set out above in our quotation from the Michigan statutes. The opinion of the court concludes:
This petitioner intended to sell these shares in order to take a loss. This is justifiable under the statutes. The broker intended to execute the petitioner's order. The Sales Act allows delay of delivery. The Revenue Act does not prevent the petitioner from keeping 800 shares of stock which he owes to the broker when the broker owes him 800 shares of the same stock.
In
The above cases in the state courts, the Federal courts, and the Board give what seems to us a sound interpretation to the Uniform Acts. They recognize the practical situation that exists in the daily purchase and sale of the shares of the many corporations whose stocks are*566 on the market and apply to such transactions the general rules governing sales of personal property. Under the cited cases harmonizing the two Uniform Acts it must be held in this case the sales involved were completed in 1930. The petitioner intended to sell in 1930 specific shares then available for delivery and the broker intended to sell those shares. And, as said in the
Our conclusion here need not rest on our interpretation of the Uniform Acts. These acts can not control the matter of deductions under a Federal revenue act. Deductions for losses, like those for depletion,
Reviewed by the Board.
Millard v. Green , 94 Conn. 597 ( 1920 )
Guppy v. Moltrup , 281 Pa. 343 ( 1924 )
Provost v. United States , 46 S. Ct. 152 ( 1926 )
Weiss v. Weiner , 49 S. Ct. 337 ( 1929 )
Palmer v. Bender , 53 S. Ct. 225 ( 1932 )
Burnet v. Harmel , 53 S. Ct. 74 ( 1932 )
Corwin v. Grays Harbor Washingtonian , 151 Wash. 585 ( 1929 )
Lucas v. American Code Co. , 50 S. Ct. 202 ( 1930 )
Compañia General De Tabacos De Filipinas v. Collector of ... , 49 S. Ct. 304 ( 1929 )