Von Platen v. Commissioner

*250 This proceeding results from the determination of a deficiency in income tax for the year 1921, amounting to $9,626.47. Petitioner alleges error with reference to one issue - whether the petitioner realized income in 1921 from an interest in a joint venture in the purchase and sale of timber lands, said interest having been acquired by petitioner by gift from his father in 1920, and if income was realized, what was the amount thereof.

FINDINGS OF FACT.

Petitioner is an individual residing at Grand Rapids, Mich., and is the son of Godfrey von Platen, who was an extensive operator in timber and timber products and a man of large means. Godfrey von Platen died on December 25, 1924.

Godfrey von Platen and his associates were in negotiation during the year 1919 with Frederick F. Ayer, surviving trustee under the will of James C. Ayer, deceased, for the purchase of a large*4160 tract of timber land located in northern Michigan. They caused a thorough cruise of the lands to be made by competent cruisers and ascertained the approximate supply of timber available thereon. Under date of *251 May 5, 1919, an agreement in writing was entered into with reference to the purchase of the timber lands, providing as follows:

ORIGINAL AGREEMENT

Between von Platen, Fox, Badger and Newton

MEMORANDUM OF AGREEMENT, Made this 5th day of May, 1919, between GODFREY VON PLATEN, of Grand Rapids, Michigan, party of the first part, MERTON J. FOX of Iron Mountain, Michigan, party of the second part, ALPHEUS S. BADGER of Chicago, Illinois, party of the third part, and C. E. M. Newton of Chicago, Illinois, party of the fourth part, WITNESSETH as follows:

1. The parties hereto contemplate that an option in the name of Godfrey von Platen, or Von Platen Lumber Company, will be taken on the so-called Ayers Tract of timber land in the Upper Peninsula of Michigan, sometimes known as the Military Road Land Tract, consisting of approximately One Hundred seventy-two thousand (172,000) acres of land. This option will, in the first instance, be for a fixed time, probably three*4161 months, with such right of extension or extensions as may be specified in said option. At present the exact purchase price to be specified in said option is not known, nor is the exact amount which it will be necessary to pay as the consideration for said option, these being matters to be more definitely agreed upon hereafter by the parties hereto and by the owners of said lands.

2. It is further agreed that the parties hereto shall be interested in said option and except as herein otherwise provided shall share all profits and losses arising therefrom, as follows: von Platen - 30%; Fox - 30%; Badger - 30%; and Newton - 10%.

If any such option is procured each party to this agreement shall pay his proper percentage of the amount or amounts required to be paid for said option, and also of any amount or amounts thereafter required to be paid in order to procure or effect any desired extension, or extensions thereof, and also of all other expenditures which may be authorized or approved and incurred as herein provided, in connection with the procuring of said option, the selling or otherwise handling of said lands or the timber thereon, or other expenditures required to be made*4162 hereunder, except that the expenditures heretofore or hereafter incurred for cruising the timber on said lands shall be paid by said Fox and von Platen and shall not be a charge against the other parties hereto; but in case said lands or timber are sold or otherwise disposed of, the said cost of cruising shall be re-paid to said Fox and von Platen as a part of the expenses out of the proceeds of sale before computing profits.

3. All expenditures in connection with the transactions involved hereunder in order to be enforceable as between the parties hereto shall either be agreed to or approved in writing by the parties hereto, or a majority in interest thereof, and the handling of said transaction, or any part thereof, whether with respect to the procuring of said option, the surveying of said lands, the cruising of the timber thereon, and the sale or disposition of lands or timber, or otherwise, shall be managed and determined as the parties hereto, or a majority in interest thereof, shall agree or decide.

4. If, when said option is about to be taken, any party or parties hereto shall neglect or refuse to pay his or their proper share of the amount required to be paid for said*4163 option, then the other parties hereto may pay the required amount and take said option and the defaulting party or parties shall have no interest therein or any claim whatever against either the parties giving or taking said option. In such case the parties taking said option shall make *252 payment and be interested therein in the same relative proportions as these herein fixed and subject to all the terms and provisions hereof.

5. If, after said option has been procured any party or parties hereto shall neglect or refuse for a period of ten days after written notice or demand to pay his or their share of any proper or necessary payment or expenditures authorized or approved as herein provided, then in such event the other parties hereto may (but shall not be obliged to) pursue the following course:

They, or such of them as may be willing to do so, may pay the said sum or sums of money, the payment of which is so neglected or refused by said defaulting party or parties, and release or cause said defaulting party or parties to be released from liability thereon; and in such event the party or parties making such payment shall be entitled to have said money refunded to*4164 them out of any profits realized, together with a percentage of profit thereon equal to the percentage of profit realized on the investment of the parties hereto. The funds for any such payment shall be furnished by the parties furnishing the same in proportion to their respective percentages as herein fixed.

6. It is understood and agreed that if said option is taken for the purpose of the parties is to endeavor to resell the said lands and timber at such prices as will yield a profit over and above the option price thereof, and that all expenditures which may be made or incurred hereunder and authorized or approved in the manner herein provided, shall be first deducted from the gross receipts before a profit is figured and returned to the parties entitled to the same.

7. It is understood that the parties hereto will act together so far as practicable to forward the sale of said property, but that none of the parties hereto shall be entitled to receive any salary or other compensation for services rendered or to be rendered in connection with the procuring of said option or the handling of said lands or timber, or otherwise, in connection herewith, the intention being that*4165 the only compensation to be received by any party or parties hereto shall be such share of the profits, if any, as said party or parties shall be entitled to hereunder.

8. If there shall be a residue or remainder of said lands or timber after sufficient have been sold to re-pay the purchase price and other expenditures hereunder, the title to said residue or remainder shall be taken in the name of said Fox as Trustee for the parties hereto, according to their respective interests, and the said Fox hereby agrees to accept said trust and execute a proper declaration wherein shall be outlined the purposes of said trust.

9. Nothing herein contained shall be construed to constitute a partnership between the parties hereto or to authorize any party hereto to incur any obligation or liability binding upon any other party or parties hereto except as herein provided.

The sum of $5,000 was paid to Ayer in 1919 on account of the proposed option. A delay in formal action with reference to the option was occasioned by difficulties encountered by Ayer in clearing up tax titles. Under date of January 19, 1920, an agreement in writing, supplemental to the agreement dated May 5, 1919, was*4166 entered into between Godfrey von Platen, Fox, Badger, and Newton, providing as follows:

1. This agreement is supplemental to a certain agreement entered into between the parties hereto bearing date May 5, 1919, pertaining to obtaining an option on and handling certain lands referred to in said former agreement.

*253 2. In said former agreement it was stipulated that the parties hereto should pay their respective proportions as fixed in said contract of the amount required to be paid for said option and also of any amount or amounts thereafter required to be paid in order to procure or effect any desired extension or extensions thereof, and also any other expenditures which might be authorized or approved and incurred as provided in said instrument in connection with the procuring of said option, the selling or otherwise handling of said lands or the timber thereon, or other expenditures required to be made thereunder, except the expenditures for cruising the timber on said lands, which said last mentioned expenditures were to be paid in the first instance by said Fox and von Platen. Said Fox, Badger and Newton are now desirous of being relieved of the obligation to pay*4167 their share of the expenditures aforesaid, and have requested said von Platen to agree to assume and pay their share of such expenditures and have offered, in case he is willing to undertake to do so, to allow said von Platen to purchase or acquire a certain part of the property to be covered by said option on a basis of or approximately actual cost.

3. It is further agreed between the parties hereto that in case said option is obtained, said von Platen shall have the right to purchase (for himself or otherwise), acquire, and own that part of the property to be covered by said option which is described in the schedules, or indicated on the map hereto annexed, including the land and the timber thereon, or any one or more of said townships, for the following prices or amounts set opposite each township:

*4168 The said land to be purchased and paid for by said von Platen if and when said option is exercised, and so that the amount, or amounts so to be paid for the same by said von Platen can be used in part payment of the purchase price of the property covered by the said option at the time said transaction is closed with the vendor in said option.

4. In consideration of the foregoing the said von Platen agrees to assume and pay all expenditures which would otherwise be payable under said agreement by said Fox, Badger and Newton, or either or any of them, provided and upon condition, however, that the taking of said option or any extensions thereof, and the making of the said expenditures herein referred to shall be approved in writing by said von Platen and by such of the other parties to said former agreement as, with said von Platen, will constitute a majority in interest as defined in said former contract.

5. The said expenditures, payment of which is so assumed by said von Platen, shall be first deducted from the gross receipts before a profit is figured, and returned to said von Platen, as provided in paragraphs 2 and 6 of said former agreement.

6. Except as herein expressly*4169 modified or abrogated the provisions of the said former contract of May 5, 1919, are to remain in force.

In February, 1920, the sum of $12,000 was paid on account of the option, this amount being cash required for the payment of taxes. *254 The option in writing was dated March 4, 1920. The purchase price agreed upon was the sum of $2,300,000, payable all in cash when the option was exercised. The option was renewable and was renewed from time to time. The total payments prior to November 16, 1920, for the option and for taxes amounted to $56,000. Ayer had agreed to give a quitclaim deed but refused to give a warranty deed, so that it was necessary to employ the Chicago Title & Trust Co. to investigate the title to the properties and upon a favorable opinion from the trust company arrangements were made for the guaranteeing of title to any purchasers of the lands from Godfrey von Platen and his associates. In June, 1920, Godfrey von Platen acquired the interest of C. E. M. Newton, paying in consideration therefor the sum of $25,000. Under date of September 24, 1920, an agreement in writing, supplemental to the agreements of May 5, 1919, and January 19, 1920, was entered*4170 into between Godfrey von Platen and Fox and Badger, providing as follows:

WHEREAS, under date of May 5th, 1919, the parties hereto and C. E. M. NEWTON entered into a certain written agreement, with respect to the procuring and handling of an option on certain lands known as the Ayer's tract, in the northern peninsula of Michigan;

AND WHEREAS, under date of January 19th, 1920, the said von Platen, Fox, Badger and Newton entered into a certain supplemental agreement, modifying said original agreement in certain respects;

AND WHEREAS, under date of June 5, 1920, a further agreement was entered into between said von Platen and said Newton, whereby said von Platen acquired the interest of said Newton under said former agreements, which last-mentioned agreement was consented to by said Fox and Badger;

AND WHEREAS, the option referred to in said former agreements was procured by said von Platen, and has been twice extended, and is subject to further extension, but has not been exercised, and it is uncertain whether or not sufficient lands can be sold to permit of the exercising of said option, sundry negotiations being pending for sales, but none having yet been finally accomplished;

*4171 AND WHEREAS it is the mutual desire of the parties hereto, being all of the parties now interested in said matter, before proceeding further therein, to modify and supplement said former agreement and supplemental agreements, in the following respects;

IT IS THEREFORE MUTUALLY AGREED, between the parties hereto as follows:

(1) Paragraph 3 of said agreement of May 5th, 1919, is hereby rescinded and stricken out, and in lieu thereof, it is agreed that the following provision shall be substituted, namely.

All expenditures in connection with the transactions involved hereunder, in order to be enforcible as between the parties hereto, shall either be incurred by or agreed to or approved by said G. von Platen, in writing, and the handling of said transaction, or any part thereof, whether with respect to the exercising of said option, the surveying of said lands, the cruising of the timber thereon and the optioning, sale or disposition of lands or timber, or the raising of money to pay the purchase price, or otherwise, shall be managed and determined by said G. von Platen.

*255 (2) Paragraph 4 of said original agreement of May 5th, 1919, having become inapplicable, is hereby*4172 rescinded and stricken out, as is likewise the fifth paragraph of said agreement.

(3) Paragraph 7 of said original agreement is hereby modified, so as to read as follows:

It is understood that none of the parties hereto shall be entitled to receive any salary, or other compensation, for services rendered or to be rendered in connection with the procuring of said option, or the handling of said lands or timber, or otherwise in connection herewith, the intention being that the only compensation to be received by any party or parties hereto shall be such share of the profits, if any, as said party or parties shall be entitled to hereunder.

(4) Paragraph 8 of said original agreement is hereby modified so as to read as follows:

If such option shall be exercised, the title to any lands which have been sold will be conveyed to the purchaser or purchasers, either direct from said Ayer, or through said von Platen, as may be arranged, and the title to any lands not sold shall be taken by and in the name of said von Platen, who shall hold that part of the same not purchased and paid for himself under the supplemental agreement of January 19, 1920, as Trustee, for the purposes herein*4173 defined, and for the parties in interest, according and in proportion to their respective rights or interests. Any such lands or timber shall be sold or disposed of by said Trustee at such times, in such parcels, and on such terms and conditions as he may decide. The proceeds of lands or timber sold which shall remain after the purchase price and the expenditures herein provided for have been paid, or repaid, in full, and suitable reservation made for taxes or other possible expenditures, and which in the judgment of said Trustee shall be available for distribution, shall, as often as semi-annually be distributed by said von Platen among the parties entitled thereto, according to their respective interests.

The other parties in interest shall not be personally liable to said von Platen for any amount or amounts advanced, paid or expended by him, or for which he may become liable hereunder, or for any part thereof, but he shall have a first lien on said property and the proceeds thereof for any such amount or amounts, and shall be entitled to reimbursement for any such amount or amounts out of said property or the proceeds thereof, before distribution thereof among the parties*4174 in interest.

In case said von Platen shall die, resign, or become incapacitated, a new Trustee may be named by a written instrument, signed by a majority in interest, which said new Trustee, upon the making of such instrument, shall have all the powers herein given to said von Platen.

Said Trustee, or any successor Trustee, shall not be liable for any act or default, unless in case of fraud or bad faith.

Said von Platen shall not be entitled to any compensation for his own personal services in acting as such Trustee, but shall be entitled to employ such agents or assistants as may be necessary or proper, at the expense of said trust, and shall also be entitled to all his reasonable expenditures and disbursements.

(5) Paragraph 4 of the supplemental agreement of January 19, 1920, is hereby modified, so as to read as follows:

In consideration of the foregoing, the said von Platen agrees to assume and pay all expenditures which would otherwise be payable, under said agreement, by the said Fox, Badger and Newton, or either or any of them, provided, and upon condition, however, that the making of any extensions of renewals of said option, or the exercising thereof, and the*4175 making of expenditures *256 herein referred to, shall be done by said von Platen, or be authorized, or ratified and approved in writing by said von Platen.

In all other respects the said agreement, as supplemented and modified by said former agreements, shall remain in force.

In August, 1920, a corporation known as the Von Platen-Fox Co. was organized, in which Godfrey von Platen and M. J. Fox were large stockholders.

In the summer of 1920 Godfrey von Platen and associates opened negotiations with prospective purchasers of portions of the timber lands and these prospective purchasers caused cruises to be made of the lands under their consideration. Some of the prospective purchasers already owned railroads which were in contact with parts of the timber tracts. In the fall of 1920 sales agreements were entered into naming considerations in the following amounts:

*4176 The material provisions of these contracts were similar and as follows:

1. Said first party holds an option from Frederick F. Ayer, surviving trustee under the will of James C. Ayer, deceased, for the purchase of certain lands in the Upper Peninsula of Michigan, including the lands described in the schedule annexed hereto, marked "Exhibit A" and forming a part hereof, which said option, with the renewals or extensions thereof therein provided for, may run for one year from March 4th, 1920.

2. Subject to the conditions hereinafter stated, the party of the first part does hereby agree to sell, and party of the second part agrees to purchase, for the sum of * * *, all of the right, title and interest in and to that part of such Ayer lands described in the annexed schedule which said von Platen shall acquire from said Ayer under said option. It is understood that the title to be conveyed under this agreement shall be the same and subject to the same exceptions and reservations as that conveyed by said Ayer; that first party may cause conveyance to be made direct to second party by said Ayer, or may take title to himself from said Ayer and then transfer the same without covenants*4177 to second party, but in either case, the title is to be guaranteed by the Chicago Title and Trust Company, abstracts and tax histories not to be furnished.

3. This agreement is, however, conditional and contingent upon said lands being acquired from said Ayer by said von Platen under the above mentioned option or any extension or renewal thereof, and said von Platen shall not be obligated to convey the lands mentioned in said schedule to second party hereunder if he does not exercise said option, or if, for any reason, he does not *257 acquire said lands from said Ayer under said option or any extension or renewal thereof.

4. Party of the second part concurrently with the execution hereof, shall deposit with the Chicago Title and Trust Company, of Chicago, Illinois, in escrow, as earnest money, on account of said purchase price, twenty-five per cent. (25%) of said purchase price in cash, or in such form as may be satisfactory to said Chicago Title and Trust Company, to be held by said escrowee in accordance with the terms and conditions hereinafter set forth.

The first party, after January 1st, 1921, shall give the second party twenty days' notice in writing of the*4178 date when the first party intends to exercise said Ayer option. The second party shall, before the expiration of said twenty days, pay the balance of the purchase price of said land to the Chicago Title and Trust Company, in escrow, and the first party agrees to exercise his said option with said Ayer on said date mentioned in said declaration of intention, or within five days thereafter, provided that within said twenty days the second party and other parties (exclusive of said von Platen or the von Platen-Fox Company), with whom similar agreements have been or shall be made, have deposited with said escrowee, as purchase money, the sum of One Million Five Hundred Thousand Dollars ($1,500,000.00).

6. In addition to the purchase price aforesaid for said land referred to in said schedule "Exhibit A," second party shall pay the taxes on the lands described therein, for the year 1920, or an additional sum equal to the amount of such taxes, whether the conveyance of said lands is made before or after payment of said taxes has actually been made.

Prior to November, 1920, an understanding had been reached between Godfrey von Platen and the Von Platen-Fox Co., providing that in event*4179 of the acquisition of the timber lands from Ayer the company would purchase from Godfrey von Platen the lands which he was entitled to purchase in his own right under the agreement, supra, and to pay him therefor a consideration amounting to $1,040,000, and in addition thereto the taxes payable. On November 16, 1920, Godfrey von Platen executed the following instrument:

GIFT INSTRUMENT FOR KARL VON PLATEN

WHEREAS, I, the undersigned, Godfrey von Platen, am the owner of an interest in a certain option acquired by me from Frederick F. Ayer, Trustee, covering certain lands in the Upper Peninsula of Michigan known as the "Ayer" tract; and

WHEREAS, I desire to make a gift of an interest in said transaction to and for the benefit of my son, Karl von Platen, who is a minor of the age of nineteen years,

Now THEREFORE, in consideration of the premises I do hereby assign, transfer and set over to Heber W. Curtis, as Trustee for my said son, a beneficial interest in said option equal to eight per cent (8%) of the whole thereof.

This transfer is made as a gift and in consideration of my love and affection for my said son. Said Trustee shall hold the interest hereby conveyed and*4180 any funds or property arising therefrom for the benefit of my said child. When said child shall reach the age of twenty-one (21) years any property or money belonging to said trust shall then belong and be turned over to such child. In *258 case my said son shall die before reaching the age of twenty-one (21) years the interest hereby conveyed shall go and belong to my daughter Pauline.

Said Trustee shall have power and authority to represent, control, manage, handle, sell, exchange, modify or dispose of said interest hereby granted of any property resulting therefrom, and to contract with respect thereto in the same manner as though he owned the same, and to invest and re-invest funds in securities or property as in his judgment shall seem best for the interest of my said son.

As moneys are received by said Trustee hereunder he shall invest and keep the same invested so far as possible in good, safe, income-producing securities or property.

In case of the death, incapacity or resignation of said Trustee The Michigan Trust company shall succeed him as such Trustee and have all the power and authority herein conferred upon said Curtis.

This assignment does not cover*4181 the legal title to said option but a beneficial interest therein to the extent hereinbefore mentioned, the interest hereby conveyed, except as to the quantity thereof, to be the same in all respects as the interest in said option owned by A. S. Badger under existing agreements, including the agreements bearing date January 19, 1920; June 5, 1920; and September 24, 1920, and the rights of said Heber W. Curtis, Trustee, shall be no greater or different and shall be subject to the same terms and conditions as apply to the interest of said A. S. Badger under said agreements.

Karl von Platen was born December 9, 1900.

In 1920 values of timber and timber properties were relatively high and the demand for them was great. Hemlock logs were selling for $28 and $30 a thousand. The demand and prices steadily decreased after 1920 and receded to $17 to $20 per thousand in 1923. The approximate decrease in the value of stumpage from 1920 to 1923 was about $3 to $5 per thousand, depending upon the logging.

The option was exercised early in 1921 and the purchase of the timber lands from Ayers was formally closed in February, 1921. The total cost of the lands was as follows:

*4182 The purchase comprised an area of 172,118.16 acres, of which 121,073.42 acres were timbered and the remainder was denuded. According to the cruise which Godfrey von Platen and his associates caused to be made in 1919, the lands contained the following stand of timber in 1919:

*259

*4183 The denuded lands were worth in 1920 not in excess of $1 per acre. Concurrently, through the Chicago Title & Trust Co., the sales to various parties previously agreed upon were closed. Sales of this nature, made prior to February 18, 1921, were as follows:

Timber contracted to be conveyed was as follows:

Karl von Platen never actually received any money from his interest prior to the time he sold the interest in December, 1923. Such part of the proceeds of the sale made in*4184 1921 as would otherwise have belonged to him was used to pay for the original option.

During 1922 and 1923, 11 sales were made comprising a total of *260 6,654.01 acres estimated to contain 32,194,000 feet of timber. The aggregate of the sales prices was $243,060.17.

In September, 1923, the Von Platen-Fox Co. acquired from the Badgers their beneficial interest of 30 per cent in the joint venture, paying therefor a consideration of $350,000, and in December, 1923, the same company acquired the remaining outstanding beneficial interests for a consideration of $700,000, which included the consideration of $80,000 to petitioner for his interest.

The fair market value of the gift of November 16, 1920, at that time was $107,069.66.

OPINION.

SIEFKIN: The issues in this case are limited to the question of whether there was a profit realized by the petitioner in 1921. That will be based, in part, on whether there was a taxable gain in 1921, and, in part, on whether there was a value to be assigned to a gift made to petitioner on November 16, 1920.

The evidence in this case discloses that Godfrey von Platen, on November 16, 1920, transferred an 8 per cent interest*4185 in an option in which he owned a large interest, to Heber W. Curtis, in trust for his son, Karl von Platen. It is shown that Godfrey von Platen at this time, as trustee, had made payments amounting to $56,000 to Frederick F. Ayer of Boston for the renewal of an option for a large tract of timber land located in the Upper Peninsula of Michigan, and upon the strength of the said option had made, at the time the gift was made, tentative contracts of sale of portions of the tract as follows:

In each case deposits of 25 per cent of the purchase price had been posted, except in case of Von Platen-Fox Co., and it had the purchase money on hand.

At the time of the gift the parties to the option had been working on the deal for nearly two years, all of the property had been cruised for Godfrey von Platen at large expense, and large tracts had also been cruised by independent cruisers acting for various*4186 prospective purchasers.

The title company, after a searching examination of the titles, had definitely agreed that they would guarantee the same if the deal was *261 made, and the deed to the property from Ayer was prepared and ready for delivery.

Von Platen had already paid Ayer some $56,000 for the options and extensions thereof, had also paid Newton $25,000 for his 10 per cent interest, and had incurred expenses for crusing and examination of title. All of this would be lost if the option were not exercised. The timber market at this time was good.

The petitioner contends that the respondent erred in not giving credit for and deducting the market value of the gift at the time it was made in determining the distributive share of petitioner, and that he also erred in holding that the petitioner realized a taxable income from said interest in the year 1921.

The respondent contends that the petitioner received at the time of the gift, only a beneficial interest, and, according to the terms of the trust, it was not certain that legal title would ever vest in him. It is argued that due to the fact that the petitioner had no control over the interest in the option, *4187 the said interest had little market value at the time the gift was made.

While it is true that the petitioner or his trustee could not have compelled Godfrey von Platen to exercise the option, yet, in light of the circumstances shown to have existed at the time the gift was made, it would seem that little doubt could be entertained that it would be exercised.

The total cost of the Ayer property, including taxes and expenses, was $2,419,296.89, and at the time of the gift total sales had been arranged in the amount of $1,857,430.64, leaving to the trust 91,053.32 acres of land containing thereon 225,584,000 feet of timber. The value of the land was shown to be $1 per acre and the value of the timber, as evidenced by the contracts already negotiated, except that with the Von Platen-Fox Co., which purchased the land and timber at approximately cost, was $8.02 per thousand feet. At these rates the remaining property, after deducting the amount due upon the original option, would have a value of $1,338,370.75. This does not take into consideration the amount which the parties agreed to pay von Platen for taxes for the year 1920, as no evidence is submitted as to these amounts.

*4188 From all these factors we conclude that the respondent erred in holding that an 8 per cent interest in the remaining property on November 16, 1920, had no value, since, in our opinion, the evidence shows that its fair market value was $107,069.66.

The respondent computed a deficiency in income tax for 1921 basing such deficiency upon an assumption that the petitioner in that year had a distributive share of $48,511.47 in the amounts received from the trust property, which amounts were paid to Ayer *262 upon the original option cost, and upon the assumption that the beneficial interest of the petitioner had no value at the time of the gift. At the hearing respondent conceded that such amount was not more than $39,747.09.

However, while we determine a value of $107,069.66 of the gift at the time it was made, the amount of $39,747.09 does not represent net income. Even if we consider that amount as having been constructively received by the petitioner in 1921 (because he became entitled to the legal title as well as the equitable title to 8 per cent of the option on December 9, 1921, when he became twenty-one), such amount would be income to him only if and to the extent*4189 that the $39,747.09 exceeded the basis of the petitioner's interest in the property. That there is no such excess is clear when it is marked that the basis which we have found is based upon the sales in immediate prospect at the time of the gift and which result in the said amount. There was, therefore, no taxable income to the petitioner in 1921 under such theory. And if we consider that the amount of $39,747.09 was disbursed by Curtis, as trustee for the petitioner, before December 9, 1921, it is equally clear that no income resulted to the petitioner, but that the income, if any, was that of the trustee, Curtis. Under no theory that we can conceive or that is suggested by respondent, did income result to the petitioner in 1921, when it is determined that the fair market value was as above stated. That is so whether November 16, 1920, or December 9, 1921, fixes the date of receipt by the petitioner, since the value was the same at either date.

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