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Trinity Corp. v. Commissioner of Internal Revenue.

Circuit Court of Appeals, Fifth Circuit
Apr 21, 1942
127 F.2d 604 (5th Cir. 1942)

Summary

In Trinity Corporation v. Commissioner, 5 Cir., 127 F.2d 604, certiorari denied, 317 U.S. 651, 63 S.Ct. 47, 87 L.Ed. 524, the taxpayer transferred certain real estate in exchange for cash and shares of its stock.

Summary of this case from Universal Oil Products Co. v. Campbell

Opinion

No. 10171.

April 21, 1942.

Petition for Review of Decision of the United States Board of Tax Appeals (District of Texas).

Petition by Trinity Corporation to review a decision of the United States Board of Tax Appeals, 44 B.T.A. 1219, redetermining a deficiency in income and excess profits taxes determined by the Commissioner of Internal Revenue.

Affirmed.

Robert Ash, of Washington, D.C., for petitioner.

L.W. Post and J. Louis Monarch, Sp. Assts. to Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and J.P. Wenchel, Chief Counsel, Bureau of Internal Revenue and Rollin H. Transue, Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C., for respondent.

Before HUTCHESON, HOLMES, and McCORD, Circuit Judges.


This case involves income and excess-profits taxes of the petitioner, a Texas corporation, for the year 1937. The decision of the Board of Tax Appeals is reported in 44 B.T.A. 1219.

On December 1, 1937, petitioner's principal asset was the Trinity Building in Fort Worth, Texas, which was constructed upon land leased for a ten-year period with an option to renew the lease for similar periods successively until 1987. All of petitioner's stock (5,000 shares) had been acquired by the Commercial Standard Insurance Company in 1935 for $625,000.

By a series of transactions consummated on December 1, 1937, petitioner transferred its building and lease to the Commercial Company in exchange for $60,000 in cash, real property, and 2,920 shares of petitioner's own stock. It also agreed to keep the lease renewed and to maintain its capital structure constant during the life of the agreement, pledging the stock certificates to guarantee performance of the agreement. The controversy here is as to whether the value of the stock should be considered in determining petitioner's gain or loss on the transaction, and, if so, what was the fair market value of the stock at the time of transfer.

Under Section 22(a) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev. Acts, page 825, gains or profits derived from sales or dealings in property must be included in gross income. The amount realized from the sale or other disposition of property is the sum of the money received plus the fair market value of the other property received. Sec. 111(b) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev. Acts, page 1041. This court has held that the receipt by a corporation of its own stock and other property in exchange for its real property is a conversion, by sale, of a previous purchase; that gain or loss resulting from such sale of corporate property for its own stock is realizable both under the administrative interpretation of the law as it existed from 1918 to 1934, and under the regulation as changed in 1934. Dorsey Co. v. Commissioner, 5 Cir., 76 F.2d 339, 341; Hammond Iron Co. v. Commissioner, 5 Cir., 122 F.2d 4. These decisions are directly in point, and require no elaboration. The fair market value of the stock should have been included in the computation of gain or loss under Section 111(b), supra.

The Commissioner ascribed to the stock a fair market value of $73.34539 per share. The Board of Tax Appeals found the valuation to be correct, and upheld the deficiency assessment based thereon. Petitioner contends that the stock had no fair market value, because its use by the petitioner to guarantee performance of its agreement restricted its re-sale. Helvering v. Tex-Penn Oil Co., 300 U.S. 481, 57 S. Ct. 569, 81 L.Ed. 755. However, the sale of the stock was not forbidden by the agreement; the sole effect of the restriction imposed was that a purchaser would take subject to the terms of the agreement. Such a restriction may reduce, but does not destroy, the fair market value. Indeed, in 1938, petitioner sold 320 shares of the stock to the Commercial Company without changing or violating its agreement.

Fesler v. Commissioner, 7 Cir., 38 F.2d 155; Newman v. Commissioner, 10 Cir., 40 F.2d 225; Id., 10 Cir., 41 F.2d 743, certiorari denied Newman v. Burnet, 282 U.S. 858, 51 S.Ct. 33, 75 L.Ed. 760; Wright v. Commissioner, 4 Cir., 50 F.2d 727; Heiner v. Gwinner, 3 Cir., 114 F.2d 723.

In its tax returns for 1937 the Commercial Company valued the 2920 shares of stock transferred by it, and the 2080 shares retained by it, at $125 per share. Petitioner then valued its 2920 shares at $66.56 per share. The stock had been bought in 1935 for $125 per share, and the 320 shares sold in 1938 brought $73.34539 per share, which was the book value then given to the stock by the petitioner. In the light of these supporting facts, the finding of the Board as to the fair market value of the stock must be upheld.

Elmhurst Cemetery Co. v. Commissioner, 300 U.S. 37, 57 S.Ct. 324, 81 L. Ed. 491; Houghton v. Commissioner, 2 Cir., 71 F.2d 656; Commissioner v. Horseshoe Lease Syndicate, 5 Cir., 110 F.2d 748.

The order of the Board of Tax Appeals is affirmed.


Summaries of

Trinity Corp. v. Commissioner of Internal Revenue.

Circuit Court of Appeals, Fifth Circuit
Apr 21, 1942
127 F.2d 604 (5th Cir. 1942)

In Trinity Corporation v. Commissioner, 5 Cir., 127 F.2d 604, certiorari denied, 317 U.S. 651, 63 S.Ct. 47, 87 L.Ed. 524, the taxpayer transferred certain real estate in exchange for cash and shares of its stock.

Summary of this case from Universal Oil Products Co. v. Campbell
Case details for

Trinity Corp. v. Commissioner of Internal Revenue.

Case Details

Full title:TRINITY CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

Court:Circuit Court of Appeals, Fifth Circuit

Date published: Apr 21, 1942

Citations

127 F.2d 604 (5th Cir. 1942)

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