Appeal from the United States Board of Tax Appeals.
Before BUFFINGTON, THOMPSON, and BIGGS, Circuit Judges.
Two appeals are here involved. The first is in case No. 6282 and is that of the executor and executrices of the estate of Thomas J. Foley from a decision of the Board of Tax Appeals. The second is in case No. 6381, and is the appeal of the Commissioner of Internal Revenue from a decision of the Board. Since both appeals arise largely out of the same facts and circumstances, they will be considered by us in one opinion.*fn1
(1) As to the Appeal on Behalf of the Estate of Thomas J. Foley, Deceased.
The petitioners seek a review of a decision of the Board of Tax Appeals, holding that deficiencies in income taxes for the year 1928 and 1929, respectively, in the amounts of $754.39 and $7,609.86, shall be assessed against the estate of Thomas J. Foley, deceased. There is no disagreement between the parties to the litigation as to essential facts, but, since there are a number of factual situations involved, we will deal with each separately.
(a) As to Shares of United Gas Improvement Company Stock Sold by the Taxpayer Between October 8, 1928 and December 24, 1927, inclusive.
The earliest purchases of stock of United Gas Improvement Company by the taxpayer were made through his account at Ware & Co. Between November 24, 1926, and August 9, 1927, inclusive, he purchased 1,500 shares of this stock. Between March 28, 1927, and August 25, 1927, inclusive, he sold 800 shares. There can be no doubt that the 800 shares thus sold are referable to the first 800 shares bought. 700 shares remained in the account, and these 700 shares must be deemed to be the last 700 shares purchased. It is a necessary and proper inference, therefore, that the 700 shares last bought were transferred upon September 27, 1927, from Ware & Co. to the taxpayer's new account at Wasserman & Co., pursuant to the taxpayer's order.
Between October 4, 1927, and December 18, 1928, inclusive, the taxpayer purchased through Wasserman & Co. for his account with them 1,400 additional shares of United Gas Improvement Company stock. He also delivered to the account 250 shares as collateral. The cost and date of purchase of the 250 shares last referred to is not shown by the record. Upon September 25, 1928, 1,000 shares of the stock were delivered by Wasserman & Co. to the taxpayer. These shares are incapable of identification. At the time of the delivery of these shares, the taxpayer's account contained 1,750 shares. This total was made up as follows: 700 shares received from the transfer of the taxpayer's account from Ware & Co., as stated; 800 shares purchased by him upon divers dates; part of the 1,400 shares first referred to in this paragraph; and the 250 shares deposited by the taxpayer in the account by way of security. When the 1,000 shares had been delivered to the taxpayer, his account was 750 shares long. Of the remaining shares, 200 were sold by the taxpayer upon October 8, 1928; 350, upon October 22, 1928; and 100, upon. December 24, 1928.This constituted a total of 650 shares sold. The price obtained therefor was $95,487.
The dispute between the petitioners and the respondent is as to what shall be deemed to be the cost price to the taxpayer of the 650 shares last referred to. They are incapable of identification.
The answer to this question must turn upon the interpretation of Article 58 of Regulations 74 of the Treasury Department, commonly referred to as the "first in, first out," rule, as applied to the facts of the case at bar. This rule reads as follows: "Art. 58. Sale of stock and rights. - When shares of stock in a corporation are sold from different lots purchased at different dates and at different prices and the identity of the lots can not be determined, the stock sold shall be charged against the earliest purchases of such stock."
The contentions of the petitioners may be stated briefly as follows: The Commissioner used as the cost price basis of the 650 shares sold the cost price of the first 650 shares of the 700 shares purchased in the taxpayer's account with Ware & Co. and delivered by the taxpayer's order to Wasserman & Co. upon September 27, 1927. 800 shares of stock were purchased in, and 250 shares were delivered to, the taxpayer's account with Wasserman & Co. prior to the delivery of the 1,000 shares out of that account to the taxpayer. The petitioners urge, first, that the "first in, first out," rule applies to stock delivered out of the account as well as to stock sold out of the account, but, and this is their second contention, that if this court should hold otherwise, it must hold as a necessary, even inevitable corollary, that the "first in, first out," rule must also apply to stock delivered into the account, that is to say, to the 700 shares delivered by Ware & Co. to Wasserman & Co. at the time of the transfer of the account, and the 250 shares delivered to the Wasserman & Co. account as additional security, as well as to stock purchased for the account.
It will be observed that, if the first theory urged by the petitioners be followed, the cost basis of the 650 shares sold will consist of the combined purchase prices of the first 100 of the 200 shares purchased upon October 6, 1927, in the Wasserman & Co. account, the 200 shares purchased therein on October 7, 1927, the 200 shares purchased therein on May 10, 1928, the 100 shares purchased therein on September 28, 1928, and 50 shares of the 200 shares purchased therein on October 3, 1928. If we follow the alternative theory urged by the petitioners, we must hold that the 950 shares delivered into the Wasserman & Co. account by the taxpayer (700 shares transferred from Ware & Co. and 250 shares supplied as additional collateral) may be used solely against the ...