Petition for review from Board of Tax Appeals.
Before BUFFINGTON, WOOLLEY, and THOMPSON, Circuit Judges.
On their face the questions involved in this case and in the case of Roebling v. Commissioner (C.C.A.) 78 F.2d 444, this day decided, are the same. Broadly stated, they are:
What is the proper basis for determining the taxable gain from sales of property, in one instance personal, in the other real, where a testator, in different language, had in each case bequeathed or devised the property in trust for the benefit of his child during his minority, to be transferred or conveyed to him on attaining the age of twenty-one years, with a bequest or devise over in the event of the child's death before attaining that age, and where the sales were made by the child after distribution or conveyance to him?
The facts out of which the question in the instant case arose are these:
In 1904 the petitioner's mother died leaving a will by which, after sundry bequests, she devised her real estate to a trustee in trust "to hold the same for the benefit of (her) said child (the petitioner), appropriating the rents for his benefit during his minority; * * * And * * * upon the attaining by (her) child of his majority, to convey said real estate to him in fee simple"; or in the event of his prior decease to convey it to other named devisees.
The petitioner attained his majority on March 17, 1925, and on that date the trustee conveyed to him, pursuant to the provisions of his mother's will, real estate situated in Chicago, Illinois, and Erie, Pennsylvania. During the taxable years 1926 and 1927 the petitioner sold parcels of the lands at figures which show very substantial profits or little or not profits according to the basis used in the computation.
The petitioner in his income tax returns for those years reported no profits from the sales, having taken the position that the proper basis for computing profit or loss from sales of properties so held was their fair market value on March 17, 1925 when they were conveyed to him by the trustee.
The Commissioner of Internal Revenue took the opposite position that the proper basis for computing profit or loss from sales by the petitioner of properties so held was primarily their fair market value on the date of his mother's death when the properties passed to him under her will. Finding, however, that the value was greater on March 1, 1913, the effective date of the Sixteenth Amendment, than on the date of the mother's death in 1904, the Commissioner, conformably with the rule in such case, used the March 1, 1913 value and assessed against the petitioner the deficiency taxes in question. The Board of Tax Appeals sustained the Commissioner. The petitioner, though apparently having conceded that under certain court decisions the Board and the Commissioner were right, brings the case here for review.
The applicable law is found in the following provisions of the Revenue Act of 1926, c. 27, § 204 (a) (5), (b), 44 Stat. 9, USCA, tit. 26, § 935 (a) (5), (b):
"Sec. 204. (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 * * *
"(5) If the property was acquired by bequest, devise, or inheritance, the basis shall be the fair market value of such property at the time of such acquisition. * * *
"(b) The basis for determining the gain or loss from the sale or other disposition of property acquired before March 1, 1913, shall be (A) the cost of such property (or, in the case of such property as is described in paragraph * * * (5), of subdivision (a), the basis as therein provided), or (B) the fair ...