Girard Trust Co. v. Commissioner

GIRARD TRUST CO., C. T. LUDINGTON, W. S. LUDINGTON, AND N. S. LUDINGTON, EXECUTORS, ESTATE OF CHARLES H. LUDINGTON, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Girard Trust Co. v. Commissioner Docket No. 23208. United States Board of Tax Appeals 16 B.T.A. 308; 1929 BTA LEXIS 2607; April 30, 1929, Promulgated *2607 1. An exchange of stock held for investment for bonds and stock, likewise to be held for investment, and a small cash credit to equalize the values of the securities at the time of the exchange, did not result in taxable gain within the meaning of section 202(c)(1) of the Revenue Act of 1921. Richard T. Greene et al., Trustees,15 B.T.A. 401. 2. The cash adjustment incident to the exchange should be applied against, and used to reduce, the basis for determining gain or loss upon a subsequent sale of the property. Section 202(e) of the Revenue Act of 1921. Ralph B. Evans, Esq., and Benjamin O. Frick, Esq., for the petitioner. E. C. Lake, Esq., for the respondent. ARUNDELL *308 In this proceeding, involving the redetermination of a deficiency of $27,587.32 in income tax for the year 1922, the petitioner alleges as error the respondent's action in holding that a certain transaction in which stock was exchanged for bonds and stock resulted in taxable gain. At the hearing duly appointed executors of decedent's estate were substituted for Charles H. Ludington as petitioner, the latter having died on November 13, 1927. *2608 *309 FINDINGS OF FACT. Subsequent to March 1, 1913, the decedent acquired at a cost of $236,360, and thereafter, until their exchange, held for investment purposes, 4,000 shares of 8 per cent preferred stock of the Curtis Publishing Co. On or about March 1, 1922, the decedent exchanged the stock, having a market value at that time of $442,156.69, for bonds of the United States, the Territory of Hawaii, the Government of Panama, and stock of the Standard Oil Co. of New York, having a then market value of $439,828.50. The difference between the market value of the securities, amounting to $2,328.19, was credited to the account of the decedent. The bonds and stock acquired in the exchange were thereafter held for investment. In his computation of the decedent's income-tax liability for the taxable year, respondent treated the difference between the cost of the stock and the market value of the bonds and stock acquired in the transaction and the amount of credit given to equalize the market values of the securities exchanged, as taxable gain resulting from a sale. OPINION. ARUNDELL: With the exception of the fact that a small amount of cash was involved in the transaction, *2609 the facts here do not differ from those of Richard T. Greene et al., trustees,, wherein we held that an exchange of securities held for investment for other securities likewise to be held for investment falls within section 202(c)(1) of the Revenue Act of 1921, and such a transaction gives rise to neither a taxable gain nor a deductible loss. The cash adjustment of $2,328.19 incident to the exchange should be applied against, and used to reduce, the basis for determining gain or loss upon a subsequent sale of the property in the manner provided in section 202(e) of the Revenue Act of 1921. Reviewed by the Board. Judgment will be entered under Rule 50.