Couzens v. Commissioner

*3663 1. The function of the Board is not primarily to declare a rule but to determine the issues presented in each case in the light of the evidence therein, to the end that the present tax liability of each petitioner may be settled.

2. Where, during the negotiations for the sale of property by a taxpayer, a valuation of the property was sought from the Commissioner of Internal Revenue in order that the taxpayer could ascertain the extent of his tax liability in the event of sale, and the Commissioner stated a valuation, whereupon the sale was consummated and the tax computed and paid on the basis of the value stated by the Commissioner, the taxpayer's contention that the United States is prevented by equitable estoppel from asserting a claim for additional taxes based upon a different valuation must be treated with the utmost caution, since its sanction would result in having individual tax liability depend, not upon the tax statutes applicable to all, but upon the statements and conduct of the particular Government officer in respect of each individual.

3. The defense of estoppel against a claim by the United States for additional taxes is not available to a taxpayer in a case*3664 where the Commissioner had no duty to make the alleged representation relied upon.

4. Where there is no clear evidence that a taxpayer actually relied upon such alleged representation and only slight evidence from which such reliance can be inferred, such reliance may not be assumed.

5. A stockholder of a corporation, having the right to examine the books of the corporation and make other investigations to ascertain the value of his stock and otherwise to protect himself against adverse results of a mistake in calculating the taxable gain derived from a sale by him of his stock, may not so far rely upon an expression by the Commissioner as to lay the basis for the defense of estoppel against a determination of deficiency in tax resulting from a change in the gain.

6. The duties of the Commissioner as prescribed in section 321, Rev. Stats., or more recent revenue acts, do not include an appraisement of property before a tax has been assessed or before there has been a transaction in respect of such property within the purview of the taxing statute.

7. An unauthorized expression by the Commissioner as to the value of property derives no force from evidence that contemporaneously*3665 there was in the Bureau of Internal Revenue a policy of being helpful to taxpayers.

8. There is no duty of the Commissioner to create revenue, or to promote transactions from which revenue will result, or to supervise activities of private citizens except to see that taxes are properly assessed and collected.

9. A statement by the Commissioner that the Bureau "is disposed to regard $9,489.34 as a fair valuation of the stock on March 1, 1913, and one which should be used in computing any profits made from the sale" does not, under the circumstances in evidence, amount to a definitive valuation.

10. Estoppel must always depend upon the particular circumstances, and, irrespective of what the rule may be in other cases where the government deals on an equality with the citizen, it resists the sovereign power of taxation in only the most extraordinary case.

11. There is no general rule which gives judicial finality to a valuation made by the Commissioner outside the scope of his official duty or prevents his successors in office from considering the value de novo.

12. The formal assessment by the Commissioner of the amount of tax shown on the face of the taxpayer's*3666 return is a perfunctory act and does not amount to a final adoption of any item stated or implied in the return.

13. A "superficial audit" or "desk audit," correcting one item in a return, which was made so that revenue clearly due would be quickly made available and which purported not to consider or adopt doubtful items but only to lay them aside for future attention, is not a final determination as to the correctness of other items or of the return as a whole.

14. The audit of a return by one Commissioner does not preclude a modification by his successor in office of the facts upon which the computations were based.

15. Congress has provided in the revenue acts a system for assuring certainty and terminating disputes by way of a limitation period, a voluntary agreement, or a proceeding before the Board, and this system must be held to be complete, leaving no room for a judicial standard like that recognized as to other executive departments.

16. A calculation which appears to the Commissioner to be based upon an incorrect formula and to deprive the government of strikingly large taxes reasonably justifying immediate inquiry may properly be reopened.

17. Where*3667 the practice within the Bureau under a departmental order was in great confusion and the practical construction of such order was ambiguous, the Board should refrain from interpreting such order as applying to a situation not clearly within its terms.

18. A departmental order may not, by purporting to require that cases be closed, either impose upon a taxpayer more than his statutory tax or relieve him from its full burden.

19. The provisions of sec. 1312, Revenue Act 1921, and sec. 1006, Revenue Acts 1924 and 1926, providing for closing agreements, require a clear, unequivocal agreement manifesting the intention finally to dispose of all tax controversy as to the years in question, and do not admit the construction that some items as to such years are finally closed and other items remain open for contest by the taxpayer.

20. In a proceeding before the Board upon a claim in abatement resulting from a jeopardy assessment under section 274(d), Revenue Act 1924, the Board is without power to adjudicate whether the circumstances upon which the Commissioner acted were such as to denote that the assessment or collection of the deficiency would be jeopardized by delay. California Associated Raisin Co.,1 B.T.A. 1251,*3668 followed.

21. Since the expiration of the period limited by the statute for the assessment and collection of a tax destroys the right of assessment and collection, the imminence of such expiration within a time too short for the normal operations of the Bureau may reasonably form the basis for a jeopardy assessment under section 274(d), Revenue Act 1924.

22. In redetermining a deficiency or adjudicating the validity of the Commissioner's action on a claim for abatement, the Board is not sitting in judgment upon the incumbent of the office of Commissioner and will not consider his intent, motive or method of reasoning, and will assume without inquiry the bona fides of the determination.

23. The determination of questions of tax liability is in the first instance to be made by the Commissioner, and it was not intended by Congress in creating this Board that by means of a perfunctory determination or assessment this function should be transferred to the Board.

24. The Board and its Members do not have, and are not expected to have, peculiarly expert knowledge upon the value of securities or other questions of fact in proceedings before them, and can only decide issues*3669 by giving judicial consideration to the evidence properly in the record.

25. In determining the fair market price or value of shares of stock for the purpose of computing gain on the sale thereof, evidence tending to establish that such shares had a different value when grouped with a minority interest from that of shares grouped with a majority interest is admissible.

26. Under section 202, Revenue Act 1918, the fair market price or value to be ascertained is, in terms, absolute, the only purpose being to measure the tax by the gain above the value on March 1, 1913 (where higher than prior cost), which value the taxpayer is entitled to treat as capital reserved from tax.

27. The method of valuation is in itself unimportant, so long as it gives due regard to all the facts and relevant evidence and results in a value which has a reasonable relation thereto. Slavish adherence to a formula is not necessary, and whether the method should proceed from a definite study of original cost, cost of reproduction new less depreciation, general opinions of qualified witnesses, book value, recognized market quotations, or other data, depends upon the nature of the property under consideration*3670 and the extent to which such evidence bears a relation to its value.

28. In determining the fair market price or value of stock on March 1, 1913, as the basis for computing gain or loss from its sale, the Board is not directly concerned with methods adopted for valuing good will or other intangibles separately from the tangible or other assets of the corporation, or for classifying or segregating the constituent parts which are reflected in the value of the stock representing the whole.

29. In determining the fair market price or value of corporate stock on March 1, 1913, as the basis for computing gain or loss from its sale in 1919, the Board placed itself on March 1, 1913, - recognizing all the facts in existence or in contemplation on that date as shown by the evidence, and from them attempting reasonably to predict those to come, being neither unduly skeptical nor unduly optimistic, it sought to determine what an intelligent and reasonable seller and an intelligent and reasonable buyer would in their fairly mercenary interests have been most likely willingly to agree upon as a price for the property in question.

30. Where on March 1, 1913, no attempt had been made to*3671 list the stock in question on an exchange and the evidence shows that, if an application had been made to the New York Stock Exchange, such listing would have been refused because of certain restricting provisions as to the stock, the problem of valuation is, and the evidence to be considered may be, different from that applicable to a listed stock.

31. A provision in a stock certificate which does not prohibit the owner from selling or limit the selling price, but merely gives priority to certain persons (then stockholders) to purchase at the best price obtainable, is, as shown by the evidence, more likely to leave the value unaffected than it is to reduce it.

32. A fair market does not mean that the whole world must be a potential buyer, but only that there are sufficient available persons able to buy to assure a fair and reasonable price in the light of the circumstances affecting value.

33. In valuing the stock of a closely owned manufacturing corporation, no particular method of valuation or reasoning is controlling, and no particular class of persons may be recognized as experts; the independent judgment of the Board must be derived from the facts and circumstances*3672 in each case together with any available evidence of their interrelation and importance.

34. Value on March 1, 1913, is not to be judged by subsequent events, but the judgment must take into consideration the reasonable and intelligent expectations entertained on that date, and subsequent events may be considered for the purpose of ascertaining whether such expectations were entertained and whether they were reasonable and intelligent.

35. Value on March 1, 1913, may not be arrived at by looking at subsequent events known at the time of the decision and finding what the value would have been had such subsequent events been definitely known on March 1, 1913, but should be predicated upon the facts reasonably known on that date, including not only those which had completely occurred, but also those which were in process and those which were reasonably in contemplation.

36. Upon consideration of all the evidence contained in a voluminous record - including, among other things, varying opinions of executives, accountants, engineers, economists, statisticians, bankers, and others, statements of earnings prior to 1913 showing a rapid increase in earnings in each year, and many*3673 historical facts demonstrating the constant and greatly increasing success of the corporation, the efficiency of its managers and the progressive and sound policies and methods pursued by them toward development and expansion of the business, the position occupied by the corporation in the industry in 1913, its stability, and the demand for its products, and the reasonable expectation at that time of continued and growing prosperity - but without assigning to any fact a precise weight or defining its relative emphasis or importance, the fair market price or value on March 1, 1913, of certain shares of stock in the Ford Motor Company sold by the taxpayer in 1919 is determined to be $10,000 per share.