Millard v. Commissioner

The petitioners contest the determination of a deficiency in income tax for the calendar year 1920 in the amount of $9,110.76. The deficiency results from the disallowance of part of an alleged loss on the sale of stock. The Commissioner allowed a loss 'of $4,160. The petitioners claim an additional loss on the same transaction in the amount of $14,768. The Commissioner found the value of the stock to be $100 per share at the date of acquisition, while the petitioners claim the fair market value at that time was $171 per share.

*295BINDINGS OB PACT.

The decedent, W. L. Brown, and Charles P. Wheeler were the principal stockholders of Pickands, Brown & Co. The company had 15,000 shares of capital stock outstanding during 1916 and for the years prior thereto. Brown owned 4,818 shares, Wheeler 4,232, Boynton 3,715, and the remaining 2,175 shares were owned by employees of the company. The three principal stockholders, under an agreement with the corporation, made advances to the corporation in proportion to their stock ownership. On January 4, 1909, they advanced $220,000; on January 25, 1909, $57,000; on January 25, 1910, $50,000; on January 23, 1911, $200,000; making a total of $527,000. No advances were made by any of the other stockholders of the company. By the terms of the agreement the corporation was to pay interest at 5 per cent per annum, payable quarterly. As these advances ceased to be needed for working capital the money was invested in securities. On December 19, 1916, by resolution of the board of directors, these securities were authorized to be distributed among all the stockholders. Boynton received in this distribution, among other securities, 208 shares of By-Products Coke Corporation stock. The company distributed this stock on the basis of the book value or cost, which was $100 per share. The fair market value of this stock on December 19, 1916, was $171 per share. On December 30, 1920, Boynton sold 396 shares of By-Products Coke Corporation at $80 per share, sustaining a loss in the aggregate of $18,928, of which the Commissioner has allowed $4,160.

Judgment will be entered on 15 days' notice, under Rule 50.