Kay Finance Corp. v. Commissioner

KAY FINANCE CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Kay Finance Corp. v. Commissioner Docket No. 43267. United States Board of Tax Appeals 25 B.T.A. 913; 1932 BTA LEXIS 1456; March 17, 1932, Promulgated *1456 Section 204(a)(8) of the Revenue Act of 1926, requiring cost to a transferor to be used as the basis for determining gain or loss to a transferee corporation of property, for which it has issued after December 31, 1920, more than 80 per cent of its stock in payment, the transferee thereby being immediately given control of the transferor corporation, is not unconstitutional. Newman Saunders & Co. v. United States, 36 Fed.(2d) 1009, and Osburn californiaCorporation v. Welch, 39 Fed.(2d) 41, followed. J. Sydney Salkey, Esq., for the petitioner. Harold F. Noneman, Esq., and James K. Polk, Jr., Esq., for the respondent. SEAWELL *913 This proceeding involves a deficiency in income tax determined by the Commissioner for the year 1926 in the sum of $3,152.17. The error alleged is that in the sale of securities acquired by the petitioner for certain of its stock (more than 80 per cent) the Commissioner, in determining the gain or loss, has taken as the basis, or *914 starting point, the cost of such stock to petitioner's transferor, and not the cost to the petitioner. The facts were stipulated*1457 and are as follows: FINDINGS OF FACT. The petitioner is an Illinois corporation located at 310 South Michigan Boulevard, Chicago, Illinois. On November 27, 1923, petitioner acquired from Sol Kline of Chicago, Illinois, 308 shares of Chicago Motor Coach Corporation stock, which was valued at the date of the receipt thereof by the petitioner at $57,904. Sol Kline received 9,990 shares of the common capital stock of the petitioner out of a total authorized capital of 10,000 shares, in consideration of the transfer to the petitioner by the said Sol Kline of the 308 shares of Chicago Motor Coach Corporation stock and other securities. The stock in the Chicago Motor Coach Corporation cost Sol Kline a total of $7,757.50. Subsequent to September 3, 1924, the 308 shares of the Chicago Motor Coach Corporation stock were split eight for one, and thereafter the petitioner owned 2,464 shares in that corporation, and said shares were sold as follows: Date of sale Shares Sale price Oct. 4, 1926 [500] $6,980.00 Oct. 7, 1926 [500] 7,007.00 Oct. 14, 1926 1,464 19,372.72 OPINION. SEAWELL: There appears no contention but that the facts of this case, as stipulated, *1458 bring it within the provisions of sections 204(a)(8) and 203(b)(4) and 203(i) of the Revenue Act of 1926. It is, in effect, admitted that the petitioner corporation acquired after December 31, 1920, certain property (corporate stock) from an individual who had paid therefor $7,757.50 and in payment therefor to the individual the petitioner issued its own stock to an amount more than 80 per cent of its entire stock and immediately thereafter the individual was in control of the petitioner corporation; and that in 1926 the petitioner sold the property so acquired for the sum of $33,359.72. The petitioner, however, insists that at the time of the transaction between it and the individual the petitioner "valued" the property received at $57,904, and that accordingly instead of a profit or gain on the transaction of $25,602.22 ($33,359.72 minus $7,757.50), as claimed by the Commissioner, it had a loss of $24,544.28 ($57,904 minus $33,359.72). *915 There was no evidence offered at the hearing, and no stipulation of fact, tending to show that the property received by the petitioner had a value at the time of its receipt of $57,904 or of anything more than $7,757.50, the cost*1459 thereof to petitioner's transferor. There was likewise no evidence or stipulation as to the value of petitioner's stock issued in payment for the property received. But under these circumstances the petitioner contends that using the cost to the transferor as the basis for determining the profit or gain to the petitioner, the transferee, is equivalent to taxing not gain, but the capital of the petitioner, and that section 204(a)(8) of the Revenue Act of 1926 is accordingly without the warrant of the Constitution. Even if the proof or stipulated facts brought the petitioner's contentions within the circumference of its argument, nevertheless, we would be constrained to deny its conclusions and to follow the uniform rulings of the Board and the published decisions of the courts to the effect that the revenue act challenged is not violative of the Constitution. ; ; (certiorari denied, *1460 ); . Judgment will be entered for the respondent.