Mellon v. Commissioner

*628 1. The sale by petitioner of stock of the Pittsburgh Coal Co. to the Union Trust Co. of Pittsburgh was a complete and valid sale, giving rise to a legal deduction.

2. Respondent disallowed a deduction claimed on account of loss on sale of stock of the Western Public Service Corporation, on the ground that "the disposal of these stocks do not appear to be transactions on which losses may be recognized for income tax purposes." Petitioner in his petition affirmatively alleged that petitioner did not, within "thirty days before or after the date of such sales, enter into any contract or option to purchase or acquire any shares of the said stock of said corporation." The evidence shows that the stock was reacquired 37 days after the sale but does not establish when the contract to reacquire was entered into. Held, the petitioner had the burden of proving no contract or option was entered into within thirty days of the sale. The deduction is disallowed for failure of such proof.

3. Sales of stock by petitioner to a corporation, all of the stock of which was owned by his daughter, were valid sales and, under the law as it existed in 1931, gave rise to legal deductions.

*629 4. Petitioner did not file a false and fraudulent return with intention to evade taxes.

5. Petitioner was not, in 1931, the owner of any bank stocks.

6. In the summer of 1930 the Bethlehem Steel Corporation began negotiations with the McClintic-Marshall Corporation for the acquisition of approximately one-third of the assets of the latter. After terms were generally agreed on the two corporations instructed their attorneys to draw the contracts so as to prevent, if possible, the recognition of gain to McClintic-Marshall or its stockholders. Under the plan of procedure worked out McClintic-Marshall on January 15 transferred the assets omitted from the Bethlehem transaction to the Union Construction Co., a new corporation, for 4,990 of its total 5,000 shares of authorized stock, which stock was issued directly to the stockholders of the McClintic-Marshall Corporation. On February 10, 1931, the McClintic-Marshall Corporation transferred to assets covered by its agreement with the Bethlehem Steel Corporation to three of the latter's subsidiary corporations for 240,000 shares of the common stock of the Bethlehem Steel Corporation and $8,200,000, face value, of its bonds, the*630 said stock and bonds being distributed directly to the stockholders of the McClintic-Marshall Corporation. Held, that the Bethlehem Steel Corporation did not acquire substantially all of the assets of the McClintic-Marshall Corporation so as to constitute the transaction a reorganization within the meaning of section 112(i)(1)(A) of the Revenue Act of 1928; held, further, that the Bethlehem Steel Corporation was not a corporation a party to a reorganization and the gain to the petitioner on the distribution to him of the Bethlehem stock and bonds is to be recognized. Groman v. Commissioner,302 U.S. 82.

7. Though the Union Construction Co.-Koppers Co. reorganization, the Union Construction Co.-Pitt Securities Corporation reorganization, and the Pitt Securities Corporation liquidation were parts in a single plan for the liquidation of Union, the successive distributions by Union to its stockholders of the stock of Koppers and Pitt were distributions within section 112(g) and the basis of petitioner's Union stock is to be apportioned among Koppers, Pitt, and Union in determining the gain to petitioner from the liquidation of Union. Rudolph Boehringer,29 B.T.A. 8,*631 and North American Utility Securities Corporation,36 B.T.A. 320, followed.

8. Certain payments by the Union Construction Co. and Pitt Securities Corporation for the account of petitioner held to be dividends.

9. The fair market value of the stock of the McClintic-Marshall Construction Co. on March 1, 1913, determined to $300be per share.

10. The A. W. Mellon Educational and Charitable Trust was, in 1931, a valid existing trust, organized and operated exclusively for educational and charitable purposes. The transfer by petitioner to the trust of certain paintings in 1931 was a complete and valid gift.