of way for said branch railroad and undertook the grading of the same and together with the other incorporators financed the building of same.
22. That Harry Boulton superintended the buying of materials, the construction of the improvements, the entering of drifts and air shafts, and all other things necessary to the opening and developing of said coal tract, being assisted in the actual opening of said mines by John Benson.
23. That the first coal from said mine was produced in June, 1914.
24. That Harry Boulton superintended the sale of the product of said mines after they reached a producing basis.
25. That said mines did not reach a dividend paying basis until December, 1916, and the first dividends were not declared thereon until 1917.
26. That in March, 1917, the plaintiff sold his capital stock of the Hale and Lady Smith Coal Mining Company and received therefor the sum of $47,670.
27. That the plaintiff, after being given the right to subscribe, invested cash to the amount of $11,500, as found by the government.
28. That the plaintiff filed an income tax return for the year 1917, in which he gave the sum of $18,670 as profit on the sale of the stock of the two corporations.
29. That the amount in contest herein is the sum of $3,138.59, with interest from May 11, 1923, being an overassessment of $2,989.08, and a penalty of $149.51, assessed by reason of the nonallowance by the Commissioner of any sum to Harry Boulton for the value of his services rendered.
30. That at the time of being permitted to subscribe for the stock of the Hale Coal Company and the Lady Smith Coal Mining Company, the plaintiff contemplated that he would be required to expend his services without charge over a period of years to the amount of approximately $20,000.
31. That the plaintiff herein claims that the services rendered by him for the years 1912 to 1916, inclusive, were of a minimum value of $3,500 per year, and that he is entitled to a credit for same of a total of $17,500 on the cost of his stock of said corporations.
32. That the total cost to the plaintiff of the stock of said corporations was $29,000.
33. That the plaintiff was given the right to subscribe to said stock by reason and in consideration of services to be rendered by him without charge.
34. That the cost of the right to subscribe of the plaintiff was not less than $17,500.
Conclusions of Law.
I. The additional assessment of $6,165.17 and the penalty of $308.26 were improper and incorrect.
II. That the measure of profit to the plaintiff from the sale of the stocks in question is the difference between the selling price and the cost price which is determined by the moneys and services advanced by the plaintiff.
III. That the services rendered by the plaintiff in the opening, developing, and marking of said coal are part of the cost to him of his stock in said corporation.
IV.That the plaintiff is entitled to have the value of his services added to the moneys invested by him in determining the costs of the shares of the Hale Coal Company and the Lady Smith Coal Mining Company.
V. That judgment should be entered in favor of the plaintiff and against the defendant for the sum of $3,138.59 with interest from the 11th day of May, 1923.
The question involved in the instant case is the propriety of the refusal of the Commissioner of Internal Revenue, in determining the profits of plaintiff arising from the sale of his stock in two certain corporations, to allow as part of the cost to plaintiff the value of certain services rendered by him in connection with the organization of the corporations and their operation prior to any return of dividends by them.
The plaintiff claims in the present suit that in addition to the amount of money actually paid by him for the stock in question in order to acquire it, he was compelled by his contract with the other incorporators and with the original owners of the properties taken over by the corporations, to expend labor and effort which was worth at least the sum of $17,500. The uncontradicted testimony shows that this service was agreed upon and rendered; that it was worth $17,500; and that plaintiff received no compensation therefor other than by the right to acquire the stock. Under these circumstances it is our opinion that the plaintiff is entitled to claim that the cost of his stock was not merely $11,500, the amount of money paid, but also $17,500, the value of his services rendered pursuant to his agreement. The additional assessment of $6,165.17, and the added penalty of $308.26 for delay in payment thereof, in this view of the matter, was incorrect, and the plaintiff is entitled to recover herein the sum of $3,138.59, the amount of tax assessed against him by reason of the disallowance of the value of the services as part of the cost of the stock, with interest from May 11, 1923. Judgment will be entered for that amount in favor of plaintiff.
© 1992-2004 VersusLaw Inc.