The opinion of the court was delivered by: MCVICAR
This is an action to recover the sum of $10,108.15 with interest, alleged to have been erroneously collected from plaintiff as income tax for the calendar year 1930. Jury trial was waived.
In a reorganization proceeding June 16, 1930 of the Duquesne Steel Foundry Company, Wheeling Mold & Foundry Company and Hubbard Steel Foundry Company, all of the assets of said companies were conveyed to the Continental Roll & Steel Foundry Company, a new corporation. Plaintiff was the owner of 625 shares of the stock of the Duquesne Steel Foundry Company. He had owned said stock from a date prior to March 1, 1913. On said date, the stock had a value of not less than $127.50 a share. Under the reorganization proceeding, plaintiff was entitled to and received for each share of stock that he had in the Duquesne Steel Foundry Company, $96.33 in cash, three-fourths of a share of the preferred stock of the Continental Roll & Steel Foundry Company and one and one-half shares of the common stock of said corporation. Under agreements made, plaintiff did not actually receive said stock but it was held in escrow for him by a bank in Pittsburgh. The common and preferred stock, under said agreements, could not be sold for the period of one year from June 16, 1930, and the certificates were so stamped across the face. During the year 1930, the preferred stock was released from the escrow agreement upon the express condition that it would not be sold prior to June 15, 1931, without the consent of two companies of bankers and brokers. By virtue of the restrictive agreements as to sale of said stock, it did not have a fair market value during the year 1930. Plaintiff, in his income tax return for the year 1930, returned said cash and stock received in the reorganization proceedings, showing a gain of $50,362.50. He made a claim for refund on the ground that said amount had been erroneously returned and that the stock received under the restrictive agreement did not have a fair market value during the year 1930. His claim for refund was refused; hence, he brought this action.
The applicable act, being the Revenue Act of 1928, relating to the determination of amount of gain or loss, Sec. 111 (a), 26 U.S.C.A. § 111, provides: "(a) Computation of Gain or Loss. Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 113 (b) and the loss shall be the excess of such basis over the amount realized."
Section 111 (c) of the same act, 26 U.S.C.A. § 111, provides: "(c) Amount realized. The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received."
Section 111 (d) of the same act, 26 U.S.C.A. § 111, provides: "(d) Recognition of gain or loss. In the case of a sale or exchange, the extent to which the gain or loss determined under this section shall be recognized for the purposes of this title, shall be determined under the provisions of section 112."
Section 112 of this act, 26 U.S.C.A. § 112, relating to recognition of gain or loss, provides:
"(a) General rule. Upon the sale or exchange of property the entire amount of the gain or loss determined under section 111, shall be recognized, except as hereinafter provided in this section. * * *
"(c) Gain from exchanges not solely in kind --
"(1) If an exchange would be within the provisions of subsection (b) (1), (2), (3), or (5) of this section if it were not for the fact that the property received in exchange consists not only of property permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property."
Section 113, 26 U.S.C.A. § 113, relating to basis for determining gain or loss provides:
"(b) Property Acquired before March 1, 1913. The basis for determining the gain or loss from the sale or other disposition of property ...