Appeal from the United States Board of Tax Appeals.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
This is an appeal from an order of redetermination of taxes for the year 1921 of $55,980.87 on the sale of 7,500 shares of the preferred stock of the Budd Wheel Company on the ground that the sale was not bona fide.
On February 2, 1920, Mr. Edward G. Budd purchased 7,500 shares of the stock of the Budd Wheel Company of which he was president, at $100 a share for the total price of $750,000. The stock declined in value to $70 a share, and on November 15, 1921, he sold 3,000 shares of the stock to Mr. William B. Read, treasurer of the Budd Wheel Company. Mr. Budd indorsed and signed over to Mr. Read the certificates for the stock. The proper transfer stamps were attached to the certificates and canceled and the certificates were delivered to the Commercial Trust Company, the transfer agent of the company. On the same day the company issued new certificates to Mr. Read, which were countersigned by the transfer agent and registered by the Commonwealth Title & Insurance Company, the registrar.
Mr. Read gave to Mr. Budd in payment of the stock his promissory note dated November 15, 1921, payable February 1, 1922, for $210,000, bearing interest at the rate of 6 per cent. per annum. On the back of the note United States Revenue Stamps in the amount of $42 were affixed and canceled on the same date, November 15, 1921.
Mr. Read was worth over $600,000 at the time of these transactions, and the sale was admittedly made at that time for the purpose of taking a loss, but the testimony shows that there was no agreement, written or oral, or any understanding of any kind that Mr. Budd should subsequently repurchase the stock or that there should be an accounting of profits and losses between them.
Subsequently Mr. Read sold 660 of these shares of stock to a Mr. Campbell, leaving 2,340. The proceeds of this sale were deposited in the bank account of Mr. Read, who then drew his personal check for the amount and sent it to Mr. Budd and noted on the check that it was in curtailment or reduction of the note for the stock, but Mr. Budd appears not to have made any indorsement of the payment on Mr. Read's note.
On February 17, 1923, about fifteen months after the sale to Mr. Read, he sold to Mr. Budd the 2,340 shares, which he had left, in consideration of the cancellation and return of his note, which, as before mentioned, had been reduced, by the proceeds of the 660 shares to Mr. Campbell. The value of the stock had remained the same during the time it was held by Mr. Read, who had not paid any interest on the note, but the interest was offset by the cumulative 8 per cent. dividends which Mr. Read had not collected and which had accrued during the time Mr. Read had held the stock.
These are the undisputed outstanding facts in the transaction, and the question is whether they constituted sufficient evidence on which the United States Board of Tax Appeals could find that the sale was not bona fide. If the sale was not, it was fraudulent, made with the intention of taking a loss when he was not entitled to it under the statute and of defrauding the government to that extent.
The determination of the commissioner is presumptively correct. United States v. Anderson, 269 U.S. 422, 46 S. Ct. 131, 70 L. Ed. 347, Wickwire v. Reinecke, 275 U.S. 101, 48 S. Ct. 43, 72 L. Ed. 184. The Commissioner says the petitioner has not sustained the burden of proof which rests upon him in all cases before the Board of Tax Appeals to establish the contrary. On this theory of the case, did the petitioner bear the burden?
While the findings of fact by the Board are not conclusive, yet they will not be distuubed if there is any competent and substantial evidence to sustain them. De Ford v. Commissioner (C.C.A.) 29 F.2d 532, 533; Royal Packing Co. v. Commissioner (C.C.A.) 22 F.2d 536, 538; Ox Fibre Brush Co. v. Blair (C.C.A.) 32 F.2d 42, 45.
Two questions arise: (1) Was there any competent and substantial evidence to sustain the finding that the sale was not bona fide but fraudulent? (2) Was there any evidence sufficient to overcome the presumption that the Commissioner's determination was correct?
As to the first question the Commissioner did not offer any evidence, but relied upon the evidence of the petitioner. He says that the testimony of the petitioner and Mr. Read was vague, their memory was bad in that Mr. Budd was unable to recall whether the stock of his company went up or down after the sale to Mr. Read; that Mr. Read was unable to remember the month or year when he sold the stock to Mr. Campbell and was unable to produce the check with which he paid the petitioner. The ...