Appeal from the District Court of the United States for the Eastern District of Pennsylvania; Guy K. Bard, Judge.
Before BIGGS, CLARK, and JONES, Circuit Judges.
The appellant taxpayer, as often, has elected to come to us through the District Court rather than through the Board of Tax Appeals.*fn1 He complains of the imposition of additional tax ($3,661.15) on income which he says is not his but his son's. This claim emantes from a paternal "rescue party." The son, Earl J. Van Sciver, had borrowed money from a bank. The collateral against this loan, along with most collateral, had gone below the financial Plimsoll mark. So father, George D. Van Sciver loaned his son $10,000 worth of bonds to be deposited under the account. At the next shrinkage (1933) the same thing happened to the collateral but something different was done about it.Out of that something different arises this litigation.
On November, 1, 1933, appellant bought his son's securities from the bank for the amount of the loan. Two years later the account was closed out by the sale of these same or substituted securities. This sale realized a balance of $12,979.07 after the father had been fully reimbursed. The son did and the father did not include this profit in his personal income tax return for 1935. Appellant can justify his postion only if the "arrangement" between father and son is either (1) a loan, (2) an option to repurchase, or (3) an irrevocable trust.
We are rather surprised at the vagueness of the testimony concerning this "arrangement." At the time of the trial, the father was in Arizona of his health and so could not give verbally the learned District Judge the benefit of his recollections.After all, however, the Federal Rules of Civil Procedure provide quite specifically for the taking and use of depositions and the old gentleman came within two of the categories there prescribed.*fn2 We are, therefore, forced to rely principally upon the evidence given by young Mr. Van Sciver, which we now quote:
"A. I went to his office in the Provident Trust Company and asked him if he would be willing to buy these identical securities in for my account and carry them until - and allow me to manage the account as well - until such time as I could repay at least the ten thousand dollars, which I doubt which - which I couldn't at that time, under the belief that the securities were selling below the value which they should sell and that I could make a profit out of the transaction, which he agreed to do.
"Q. And what was the arrangement that you then made with your father regarding these securities? A. He was to take the interest as - the income of these securities as interest, and at the final conclusion of the arrangement I was to receive the profit or be indebted to him for any loss incurred in the transaction.
"Q. After the repayment of the moneys which he had put up? A. Which he had put up to buy the bonds.
"Q. Who superintended this account from that time on? A. I superintended it." Appendix pp. 21, 22.
"Q. * * * did you have an understanding with your father, Mr. George D. Van Sciver, that he was to loan you the money to purchase these bonds, or was the purchase made by him? A. The purchase was made by him for my account.
"Q. And there was no understanding as to any loan to you? A. Loan? No." Appendix p. 28.
Besides this testimony, the record indicates two other factors. First, a loss was claimed by appellant on some of the securities sold in 1933. Second, on September 26, 1934, an entry was made in appellant's books in which the securities were entered under the heading "Earl J. Van Sciver Bond Account" with this notation:
"The above bonds which were bought Nov. 1, 1933, were to be held or sold for Earl J. Van Sciver. Any profit or loss on sales is to be credited or charged to him. Interest on the Bonds is to be retained by Geo. D. Van Sciver as interest on the money invested by him in the bonds. The bonds are ...