Perthur Holding Corp. v. Commissioner

PERTHUR HOLDING CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Perthur Holding Corp. v. Commissioner Docket No. 44498. United States Board of Tax Appeals 23 B.T.A. 1129; 1931 BTA LEXIS 1764; July 14, 1931, Promulgated *1764 Where petitioner in 1925 issued $250,000 par value of its capital stock for certain real property, the remaining $10,000 authorized capital stock being unissued, and where petitioner, in 1926, sold the property, held, that the basis for determining gain or loss to the petitioner upon the sale is the same as the basis would be in the hands of the transferor. Section 204(a)(8) of the Revenue Act of 1926. Brison Howie, Esq., and Frank S. Bright, Esq., for the petitioner. J. Arthur Adams, Esq., and F. A. Surine, Esq., for the respondent. MCMAHON *1129 This is a proceeding for the redetermination of a deficiency in income taxes for the calendar year 1926 in the amount of $15,076.65. It is alleged that the respondent erred in holding that for the purpose of determining profit or loss to petitioner on the sale by petitioner of certain real estate the basis was not the amount of capital stock issued therefor by the petitioner, but was the cost of the property to the person who transferred it to petitioner. FINDINGS OF FACT. Upon the pleadings, admissions made upon the hearing, and undisputed evidence, about which there is no disagreement*1765 between the parties, we find the facts to be as follows: The petitioner is a corporation, organized and existing under the laws of the State of New York. A meeting of the board of directors of the petitioner was held on December 1, 1925. At that meeting, an offer was made by Adolf Kuttroff to convey premises known as 128 Duane Street, New York City, to the petitioner and accept as payment therefor stock of the petitioner of the par value of $250,000. The offer was accepted at that meeting. After the meeting a deed for the property was received by the petitioner and $250,000 par value of the stock of the petitioner was issued to Kuttroff, consisting of 2,500 shares of the par value of $100 each. The authorized capital stock of the petitioner was $260,000 par value common stock, but no other stock was issued at or prior to the time of the transfer of stock to Kuttroff. The minutes of the directors' meeting of December 1, 1925, are in part as follows: Whereupon Mr. Adolf Kuttroff has offered to convey the title to No. 128 Duane Street, New York City, to this corporation and to receive in payment therefor, capital stock of this corporation of the par value of $250,000; and *1766 *1130 Whereas in the judgment of this Board such property is reasonably worth at least the amount of the consideration demanded therefor, and the acquisition of said property is desirable for this corporation, Resolved, that this corporation accepts said offer and acquire title to said premises, No. 128 Duane Street, New York City, and that the company shall issue capital stock of the par value of $250,000 in payment therefor, and Resolved, further, that the officers of this corporation be and they hereby are authorized and directed, upon receipt of a proper deed conveying said premises, to issue and deliver in accordance with this resolution 2500 shares of the capital stock of this company to Mr. Adolf Kuttroff. In 1926 the petitioner sold the above described real property for $249,848.28, and in its income-tax return for that year petitioner reported a loss on the sale of the property in the amount of $151.72. In determining the tax liability of the petitioner the respondent disallowed the claimed loss of $151.72 and, instead, included in petitioner's income an amount of $110,514.95 as profit derived from the sale of the real property in question. The respondent*1767 arrived at this profit by applying section 204(a)(8) of the Revenue Act of 1926 and holding that the basis for the determination of the profit or loss on the sale of this property was the same as it would be in the hands of the transferor. He held that the basis in the hands of the transferor would have been $139,333.33. The value of the property at March 1, 1913, was $165,000. The depreciation sustained upon the property from March 1, 1913, to the date of sale by the petitioner was $25,666.67. OPINION. MCMAHON: The parties are in agreement that the basis used by the respondent is correct if, as a matter of law, this petitioner is required to compute the gain or loss upon the sale in 1926 of the property in question by using the same basis as that which the transferor would have been required to use had he continued to own the property. The basis used by the respondent was computed by subtracting from $165,000, which was the March 1, 1913, value of the property, the amount of $25,666.67, which was the depreciation sustained upon the property from March 1, 1913, to the date the property was sold by the petitioner. Petitioner, however, contends that the respondent erred in*1768 using such basis in his determination. It is his contention that the basis to be used is $250,000, representing the par value of stock of petitioner which was issued by petitioner for the property in question. Section 204(a)(8) of the Revenue Act of 1926 provides: (a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that - * * * *1131 (8) If the property (other than stock or securities in a corporation a party to a reorganization) was acquired after December 31, 1920, by a corporation by the issuance of its stock or securities in connection with a transaction described in paragraph (4) of subdivision (b) of section 203 (including, also, cases where part of the consideration for the transfer of such property to the corporation was property or money in addition to such stock or securities), then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made. *1769 Section 203(b)(4) of the Revenue Act of 1926 provides as follows: No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in control of the corporation; * * * The evidence shows that immediately after Kuttroff transferred the property to the petitioner, Kuttroff was in control of the petitioner, since he owned all of the then outstanding capital stock of petitioner. Clearly, then, that is such a transaction as is contemplated by section 203(b)(4) of the Revenue Act of 1926, and it follows that, under section 204(a)(8) of that act, the basis to be used in the determining of gain or loss to petitioner upon its disposition of the real property in question in 1926 is the same as the transferor's basis would have been had the property remained in his hands. (which deals with section 204(a)(8) of the Revenue Acts of 1924 and 1926); *1770 ; ; ; certiorari denied, ; and ; certiorari denied, , (which deals with section 204(a)(8) of the Revenue Act of 1924). Sections 203(b)(4) and 204(a)(8) of the Revenue Act of 1926 are identical with the same numbered sections of the Revenue Act of 1924. We hold that the respondent did not err as alleged and his determination is approved. Judgment will be entered for the respondent.