*1341 *241 1. JURISDICTION - DEFICIENCY. - Where the deficiency letter sets forth that a deficiency has been determined and states the amount, the Board has jurisdiction, even though it is stated that the deficiency will be used to adjust and reduce an overassessment and *242 overpayment by petitioner's husband under a community income-tax agreement.
2. CONTRACTS INVOLVING SALE OF PROPERTY IN SAME TRANSACTION SHOULD BE READ TOGETHER. Where the petitioners and several other persons were the owners of a large number of oil-bearing lands and leases and entered into a contract for sale of same, which required them to organize a common law trust and convey the lands and leases to it in payment of all the capital stock of such common law trust and immediately turn over all the stock to the purchaser, the conveyance of the lands to the common law trust was not a taxable transaction, as it was a mere step in the consummation of the sale to the ultimate purchaser. The basis for gain is the difference between the original cost of the properties to the individuals and the amounts they received from the purchaser. Commissioner v. Moore, 48 Fed.(2d) 526; Commissioner v. Garber, 50 Fed.(2d) 588.
*1342 3. FAIR MARKET VALUE OF NEGOTIABLE PROMISSORY NOTES. Where negotiable promissory notes amounting to $800,000 were received as part of the purchase price in the taxable year and $650,000 thereof was collected during the taxable year, and all the balance early in the following year, the Commissioner's determination, that the notes were worth their face value at the time they were received, is approved in the absence of sufficient evidence to show the contrary. W. Oscar Williams,16 B.T.A. 109">16 B.T.A. 109; affd., 45 Fed.(2d) 61.
4. GIFTS - HUSBAND TO WIFE. Transfer of certain stock from petitioner Henry Hobbs to his wife in 1919, and where the shares of stock were transferred to her on the books of the corporation and before there was ever any talk of the sale involved in this proceeding, was a gift and the fair market value of the stock at that time is the basis for calculating her profit from its sale in 1920.
5. GIFT. Where petitioner received 5,000 shares of stock in a corporation which he had been assisting to promote, and of which he was one of the active spirits, and where the telegram of confirmation said that it was in consideration of his earnest*1343 efforts, such transaction is in the nature of compensation for services performed or to be performed and was not a gift, and such transaction represents taxable community income to the extent of the fair market value of the stock at the time it was received. Arthur L. Lougee,26 B.T.A. 23">26 B.T.A. 23. And this is true, even though prior to actual receipt of the shares of stock petitioner Henry Hobbs caused them to be transferred to his wife. Lucas v. Earl,281 U.S. 111">281 U.S. 111.
6. SAME OF OIL LANDS - PROFITS DETERMINED ON DEFERRED PAYMENT PLAN. Where a sale of an oil lease was made in 1919 for $375,000, of which $75,000 was cash and the balance was to be paid out of oil production, and where no negotiable notes were given and no agreement was made as to the maximum or minimum amount of oil to be produced each year, the value of future payments need not be determined, the 1919 transaction being a sale and not an exchange of property for property. The Commissioner's action in taxing the profits in 1920, which was the year petitioners finished recovering their capital costs, approved. Burnet v. Logan,283 U.S. 404">283 U.S. 404. This is especially true*1344 where the facts show that petitioners made their income-tax return on the cash receipts and disbursement basis and have not shown they reported any income from this transaction in 1919. B. A. Garber v. Commissioner, 50 Fed.(2d) 588.
7. LIMITATION WAIVER - POWER OF ATTORNEY. A waiver signed by an attorney in fact, who had been authorized to act in the settlement and adjustment of petitioners' tax matters pending before the Bureau of Internal Revenue by a written power of attorney, is valid. E. M. Pringle Naval Stores Co.,23 B.T.A. 1327">23 B.T.A. 1327.
*243 These proceedings were consolidated for hearing.
Respondent has determined deficiencies against petitioner, Henry Hobbs, of $29,056.64 for 1920 and against petitioner, Teck Hobbs, of $5,606.74 for 1919 and $29,056.64 for 1920.
In her original petition, petitioner Teck Hobbs appealed from the Commissioner's determination as to both years 1919 and 1920 and assigned errors thereto, but in her amended petition she abandoned all reference to 1919 except to claim that the action*1345 of the Commissioner for that year did not amount to a determination of a deficiency and that the Board has no jurisdiction as to 1919. The reasons advanced by petitioner for this contention will be discussed in the opinion. The other errors of which petitioners complain will also be stated in the opinion.
FINDINGS OF FACT.
The petitioners, Henry Hobbs and his wife, Teck Hobbs, were married about 1903. They lived together continuously in Texas, and all property involved, with the exception of that transferred by Hobbs to his wife, is admittedly community property. All income has been treated by the respondent as community income.
Prior to 1918 Hobbs had been engaged in ranching. In that year he moved to Wichita Falls and entered the oil business. He "traded" for himself and a group of friends, under the name of Henry Hobbs, Trustee (sometimes referred to as Henry Hobbs, Agent). His original agreement with these associates (verbal) was that he was to receive 10 per cent of the sales for his services.
This business was successful. Later he organized the Texas Chief Oil & Gas Company, a joint stock association, hereafter referred to as the Texas Company, with a capital*1346 of $80,000, divided into shares $10of each. This company acquired an oil lease on 25 acres of land in the Wichita County oil fields and successfully developed it. Hobbs was president of this company. He had, with his associates, interests *244 in other valuable properties in the same territory and a large amount of undeveloped acreage of doubtful value.
On November 25, 1919, petitioners and approximately 30 associates sold 75 per cent of the stock of the Texas Chief Oil & Gas Company and various oil leases and oil lands owned by them to C. N. Haskell of New York City for the sum of $3,200,000 cash and $800,000 in stocks. The contract of sale provided that a Delaware corporation to be known as TexasChief Oil Company should be organized as a holding company. It will hereafter be referred to as the Delaware Company. It also provided for the organization of the Hobbs Oil Company, a Texas common law trust, the latter company to have title, operate and manage the oil leases and oil properties in question, which were not owned by Texas Chief Oil & Gas Company. All the stock of the Hobbs Oil Company was to be issued to Henry Hobbs and he was to endorse it in blank and forward*1347 all of such shares to C. N. Haskell, and such shares of the Hobbs Oil Company, together with 75 per cent of the shares in the Texas Chief Oil & Gas Company, were to be turned over by Haskell to the Delaware Corporation. The Hobbs Oil Company, a common law association, was organized as agreed upon, and the oil lands and leases owned by Hobbs and his associates were transferred to it and the shares of stock in said association, when issued, were forwarded to the Delaware Company as well as the 75 per cent of the shares in the Texas Chief Oil & Gas Company. Petitioners and the others were to receive in cash or its equivalent, payments from Haskell as follows: $750,000 on December 15, 1919; $750,000 on January 15, 1920; $750,000 on February 15, 1920; $750,000 on March 15, 1920; and $200,000 on April 15, 1920. After the aforesaid contract of sale was entered into it developed that the property sold to Haskell was not as valuable as either party had considered it to be, due to the fact that oil production from the property suffered a marked decline.
On December 11, 1919, the parties entered into a supplemental contract whereby it was provided that a test should be made of the oil production*1348 from the properties which had formed the basis for the contract of November 25, 1919, and if the test showed a less average production over a period of 15 1/2 days than had obtained on November 25, 1919, the purchase price of the property would be ratably decreased. The test showed such a marked decline in oil production that the sellers felt a new estimate of production should serve as a basis upon which the supplemental sales price should be determined. Accordingly, in the early part of 1920 petitioners and associates determined what they felt Haskell should be required to pay on the basis of the lessened oil production. Both parties (Haskell in the meanwhile having transferred his interest to the Delaware Company and the latter having assumed Haskell's part of the contract) *245 agreed upon a changed purchase price in the amount of $2,100,000 plus $600,000 in stock of the Delaware Company, instead of $3,200,000 plus $80,000 in stock as had originally been agreed.
By June, 1920, Haskell had paid $1,200,000 of the last mentioned sum, but was in arrears on payments then due. The oil production has still further decreased. Petitioners desired security for the remaining*1349 payments. As a result of negotiations it was agreed on June 20, 1920, that the Hobbs Oil Company should give to the vendors of the property seven promissory notes totaling $900,000 in full payment of the balance due. The notes bore interest and were secured by a deed of trust on all the property owned by the Hobbs Oil Company, which included the property sold by petitioners and associates to Haskell. The notes, their due dates and dates of payment, were as follows:
| Note No. | Date due | Date paid | Face amount |
| 1 | July 20, 1920 | July 26, 1920 | $100,000 |
| 2 | August 20, 1920 | October 4, 1920 | 100,000 |
| 3 | September 20, 1920 | October 4, 1920 | 100,000 |
| 4 | October 20, 1920 | October 20, 1920 | 200,000 |
| 5 | November 20, 1920 | $150,000 was paid Nov. | |
| 20, 1920, and remaining | |||
| $50,000 paid Jan. 28, | |||
| 1921. | 200,000 | ||
| 6 | December 20, 1920 | January 28, 1921 | 100,000 |
| 7 | December 20, 1920 | Three-fourths of face | |
| amount paid in 1924 | 100,000 |
The notes so given were negotiable, excepting note No. 7, which was nonnegotiable pending the outcome of a suit known as The State of Oklahomav. The State of Texas, then pending in the United States Supreme Court, *1350 which questioned the title to certain oil lands located in or contiguous to the Red River. Note No. 7 was not valued by the respondent and does not enter into the controversy covered by these proceedings.
The notes were also accepted, having as collateral a deed of trust, so that if the makers of the notes defaulted in payment the vendors could at least have returned to them their property. Oil was being extracted from the property at June 20, 1920, at the rate of 270 barrels per day and at December 31, 1920, was producing substantially the same amount. Oil-producing property was selling in the Wichita Falls territory, where the property in question was situated, at a price of between $900 and $1,000 per barrel of daily production. The remaining oil leases, other than those then in production, owned by the Hobbs Oil Company were of a speculative value, most of them having been prospected for oil, dry holes having resulted.
In returning the transaction for income-tax purposes, the petitioners contend that the six negotiable notes, aggregating $800,000 involved in this proceeding should be valued at the fair market value *246 at the date of receipt, and petitioners now*1351 contend that such fair market value was not in excess of $300,000, and that such valuation of $300,000 should be used as a basis in computing the profits on the transaction. In computing the deficiency the respondent determined that the six promissory notes were worth their face value of $800,000 at date of receipt.
Of the $3,200,000 cash consideration plus $800,000 in stock in the Delaware Corporation to be paid by C. N. Haskell and his associates to Henry Hobbs and his associates under the original contract, $900,000 was to be paid for the 75 per cent of the stock in the Texas Chief Oil & Gas Company, and the balance was to be paid for the oil lands and leases owned by Henry Hobbs and his associates which were to be transferred by them to the Hobbs Oil Company, an unincorporated association, all of the stock of which was to be owned and held by the Delaware Corporation. These oil lands and leases had a fair market value of $1,750,000 at the time they were transferred by Henry Hobbs and his associates to the Hobbs Oil Company. Under an agreement with his associates, petitioner, Henry Hobbs, was to receive $25,000 as commission due for putting through the deal. Respondent included*1352 $23,820.13 on account of this item as income received in 1920, treating it as community income, one-half taxable to each petitioner.
In July, 1919, before there was ever any negotiation for a sale of the property in question to C. N. Haskell and his associates, petitioner Henry Hobbs made a gift to his wife, Teck Hobbs, of his interest in 500 shares of a par value of $10 per share, in stock in the Texas Chief Oil & Gas Company (the common law association) and this stock was thereupon issued to her in her own name under certificate No. 697. The gift was outright and no conditions were attached to it. At the time of the gift, the fair market value of these 500 shares was $50,000. The fair market value of Henry Hobbs' community interest in these shares at the time of the gift was $25,000. These shares were among those included in the sale to C. N. Haskell and respondent has treated said shares as the community property of petitioners and has computed the profit thereon as follows:
| Number of shares | Cost | Sale Price | Profit |
| 500 | $5,000 | $40,000 | $35,000 |
In the sale of these properties to Haskell and the subsequent promotion of them and the sale of the stock, *1353 Hobbs and A. H. Britain, an attorney and associate of Hobbs, were very active and rendered considerable assistance to Haskell and the corporation and association he organized in his undertaking, by acting as officers and *247 otherwise. Britain was general counsel in Texas for the TexasChief Oil Company, the Delaware Corporation. In the promotion of the Delaware Corporation, Britain received $225,000 par value in stock and petitioner, Henry Hobbs, a like amount. Each of them had a number of associates or partners with whom they divided their stock. After this division Hobbs retained only $75,000, par value.
About May 15, 1920, Haskell wired petitioner Hobbs requesting him and Britain, both of whom were directors in the Delaware Corporation, to approve and vote for certain actions of the Delaware Company in acquiring and having transferred to it certain stocks and properties. After consultation Hobbs and Britain agreed to and sent a telegram to Haskell approving the action as requested, and at the same time sent Haskell another joint telegram reciting that because of their division of their stock with their associates and partners they did not have much left and asked*1354 Haskell to give them each 5,000 shares more. Haskell answered the next day as follows:
Judge A. H. Britain, Atty.,
320 First National Bank Bldg.,
Wichita Falls, Texas.
Consideration for earnest efforts Hobbs and yourself. We will provide amount of stock you mention. Your telegram correctly states the proposition except that Peters Oil Co. stock will go direct to Texas Chief Co. Period Properties conveyed by title necessarily go to Hobbs Oil Co. period. I do not know Carrigans address. You wire him to call me on telephone this evening.
C. N. HASKELL.Petitioner received his 5,000 shares of stock above mentioned in 1920 and did not include them as a part of his income for that year, claiming that it was a gift from Haskell. The fair market value of the 5,000 shares at the time they were received by Hobbs was $5 per share, or $25,000. In determining the deficiencies for 1920, the Commissioner included in community income the sum of $50,000 par value on accoount of this stock received by petitioner, Henry Hobbs.
Petitioners owned as community property a three-tenths interest in an oil and gas lease in Wichita County, Texas, known as the Hobbs-Cannon lease. The*1355 entire lease was sold to the Emmerich Oil Company in 1919 for $75,000 cash and $300,000 to be paid from oil as produced. No notes were given. The cost of the Hobbs interest in the property after depletion and depreciation was $41,649.94. Petitioners received $22,559.34 in 1919 on account of the sale. In 1920, including their part of payments and the proceeds from sale of remaining interest, they received $52,139.26. This Hobbs-Cannon lease at the time it was sold to the Emmerich Oil Company had on it one producing oil well, producing about 300 *248 barrels of oil a day, and the contract of the Emmerich Oil Company to pay Hobbs and his associates $300,000 out of oil production in addition to the $75,000 paid in cash had a fair market value of $200,000 at the date of said contract when received in 1919. Respondent applied the payments as they came in in 1919 and 1920 first to liquidate the cost, and thereafter payments were treated as taxable income to petitioners. Respondent computed a profit from this transaction in 1920 of $33,048.66 and treated it as community income for that year. The contract of the Emmerich Oil Company to pay Hobbs and his associates for said lease*1356 was as follows:
The total consideration for this option contract is three hundred seventy five thousand ($375,000.00) Dollars to be paid first party by the second party as follows: (a) The sum of seventy five thousand ($75,000.00) Dollars shall be deposited in the First National Bank, wichita Falls, Texas, in escrow until 3:00 P.M. on the 7th day of November, 1919 at which time said sum shall be turned over by said Bank to the first party. (b) The balance of said sum of three hundred seventy five thousand ($375,000.00) dollars being three hundred thousand ($300,000.00) dollars shall be paid by the second party giving all of 7/8ths of the oil run from said premises up to and including the 15th day of January, 1920, after January 15th, 1920, the second party agrees to pay to first party the proceeds of all of 3/4ths of 7/8ths of the oil taken from said lease until the total consideration shall have been paid.
The income-tax return of petitioner Teck Hobbs for 1919 was filed on or about March 23, 1920, upon which a tax liability of $515 was assessed and paid. Her return for 1920 was filed on March 29, 1921, disclosing a tax liability of $25,289.08, which was assessed on June 24, 1921, and*1357 of which there is still unpaid the sum of $12,061.86. The income-tax return of petitioner Henry Hobbs for 1920 was filed on or about March 29, 1921, showing a tax liability of $25,289.08, which was duly assessed and of which $12,061.86 is still unpaid.
On February 28, 1925, both petitioners executed an income-tax waiver, extending the time for making an assessment for 1919 taxes until December 31, 1925, and on December 15, 1925, Mrs. Hobbs signed an income-tax waiver for the years 1919, 1920 and 1921, extending time for assessment to December 31, 1926. On December 1, 1926, an income-tax waiver, signed "Mrs. Teck Hobbs by A. E. Myles, attorney-in-fact," was executed and filed.
Under this waiver time was extended to December 31, 1927, for making assessment for the years 1919, 1920 and 1921. The attorney in fact, A. E. Myles, is a certified public accountant and tax practitioner and at that time was in charge of petitioners' tax matters and their settlement. He was acting under the following written power of attorney, which was on file in the Internal Revenue Bureau:
*249 KNOW ALL MEN BY THESE PRESENTS:
That we, Henry Hobbs and (Mrs.) Teck Hobbs, husband and wife, *1358 who reside at #1200 Kemp Blvd., Wichita Falls, Wichita County, Texas, do hereby nominate, appoint and constitute A. E. Myles, whose business address is #433 Waggoner Building, Wichita Falls, Texas, our true and lawful attorney-in-fact and hereby authorize and empower him as such attorney-in-fact to appear for us, and each of us, and in our stead before the Bureau of Internal Revenue, Washington, D.C., and before any of its divisions, agents or representatives, and before The United States Board of Tax Appeals, if necessary, and then and/or there represent us, and each of us, in all matters, pertaining to the determination and adjustment of our Income and Excess Profits Tax liability, if any, for the calendar year 1919 and all subsequent years to date;
And we do hereby further authorize and empower the said A. E. Myles as such attorney-in-fact to enter into any and all necessary agreements, compromises and settlements if and when required by the Bureau of Internal Revenue, or its accredited agents and representatives, and to sign our names to any or all such agreements, compromises and settlements, if same be required in writing, and if and when any or all of such representation has*1359 been made, and such written instruments, if any, shall have been so signed with our individual names by the said A. E. Myles as such attorney-in-fact any or all of his such acts shall have the same force and effect and be as binding upon us, and each of us, as though done by us in person.
Witness our hands this the 31st day of October, 1925.
(Signed) HENRY HOBBS
MRS. TECK HOBBS.The deficiency notices to both petitioners were mailed February 24, 1927. On December 15, 1925, Henry Hobbs executed an income-tax waiver for 1919, 1920 and 1921, extending time to December 31, 1926, and on December 1, 1926, executed a like waiver extending time to December 31, 1927. All of these waivers, except the one executed by A. E. Myles as attorney in fact for Mrs. Hobbs, were signed in person by the taxpayers and by the Commissioner or an authorized subordinate. The Myles waiver was accepted and approved by the Commissioner. In addition to these waivers both petitioners executed a series of tax-collection waivers extending the time for collection of the unpaid balances of $12,061.86 each on 1920 taxes to December 31, 1931.
Petitioner Henry Hobbs acted as trustee or agent for all of*1360 the sellers or vendors in the Haskell transaction and kept his books and accounts and made his income-tax returns on the cash receipts and disbursement basis. The petitioner, Mrs. Teck Hobbs, kept no books but made her income-tax return on the cash receipts and disbursements basis.
The first paragraph of the deficiency notice mailed to the petitioner, Mrs. Teck Hobbs, reads as follows:
The determination of your tax liability for the years 1919, 1920 and 1921, as set forth in office letter to you dated October 5, 1926, has been changed as the result of the conference held in this office to disclose a deficiency for 1920 amounting to $29,056.64 and an overassessment for 1921 of $333.23. A deficiency*250 of $5,606.74 has been determined for 1919 and applied to reduce an overassessment on your husband's return, in accordance with a community property agreement. See statement attached. [Italics supplied.]
The statement attached, after explaining two income adjustments, contains a paragraph in reference to 1919, readings as follows:
Your tax liability has been redetermined as $6,121.74. Since $515.00 was previously assessed, the deficiency for this year*1361 is $5,606.74, which amount has been applied on your husband's return to reduce the overassessment shown thereon. This application of your additional tax is in accordance with an agreement signed by each of you consenting to an adjustment on the community property basis. [Italics supplied.]
A corresponding paragraph in the statement attached to the deficiency letter addressed to petitioner Henry Hobbs reads as follows:
Accordingly, for the year 1919, the total net income has been increased by $1,154.80 to $89,317.58, of which amount $45,306.29 represents your community portion and $44,011.29 the community portion of your wife. Your tax liability has been redetermined as $6,393.69. Since $15,132.82 was previously assessed, there has been an overassessment of $8,739.13, which amount has been reduced by the additional tax shown on your wife's return of $5,606.74, thus resulting in a net overassessment on your return of $3,132.39. This application of your wife's additional tax was made in accordance with an agreement executed by each of you on the community property basis.
Notwithstanding the expressions "has been applied" and "has been reduced" in the above quoted paragraphs, *1362 the collector's statements show that no such credit has been made on the accounts of either of the petitioners for said year. Instead, it appears that two assessments, $9,137.58 shown on the return and $5,995.24 assessed in May, 1924, making the total of $15,132.82 above mentioned, were theretofore made against Henry Hobbs for the year 1919; that there had been paid the amount of the original tax, $9,137.58; that there was and is still outstanding the additional assessment of $5,995.24; and that with respect thereto Henry Hobbs has filed with the collector tax collection waivers dated respectively December 7, 1927, December 5, 1928, December 11, 1929, and December 9, 1930, successively extending the period for collection of said outstanding assessment to December 31, 1928, 1929, 1930, and 1931.
OPINION.
BLACK: No deficiencies were determined against Henry Hobbs for the years 1919 and 1921, nor against Mrs. Hobbs for 1921, but overassessments were determined for those respective years and it follows that the proceedings for 1919 and 1921 as to Henry Hobbs, and for 1921 as to Mrs. Hobbs, should be and are hereby dismissed for lack of jurisdiction. *1363 .
On the hearing and upon final submission counsel for petitioners moved to dismiss the proceeding as to Mrs. Hobbs for the year *251 1919, upon the ground that the Board has no jurisdiction because the deficiency notice did not determine a deficiency against her for said year. The facts with reference to this phase of the proceeding, have been stated in the findings of fact.
Petitioners' contention is based on section 273, Act of 1926, which defines "deficiency" as "the amount by which the tax imposed by this title exceeds the amount shown as the tax by the taxpayer upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, credited, refunded, or otherwise repaid in respect of such tax." Petitioner contends that the use of Mrs. Hobbs' deficiency to reduce Henry Hobbs' overassessment is a collection without assessment and that when this is added to the tax shown on her return there is no deficiency. We think petitioner overlooks the word "previously" as used in the*1364 section. The act provides that when the deficiency is determined there shall be added to the amount shown on the return amounts previously assessed or previously collected without assessment. In making his determination here, the respondent followed the act as we interpret it. At the time of determining the deficiency there had been no previous collection of the amount involved therein with or without assessment and there was nothing to add to the tax shown on the return on this account. Moreover, the evidence shows that, notwithstanding the language used in the deficiency notice, there has never been any use of the overassessment determined in favor of Henry Hobbs in settlement of the deficiency determined against Mrs. Hobbs. In these circumstances we hold that respondent determined a deficiency and Mrs. Hobbs appealed from that determination to this Board, which is sufficient to give the Board jurisdiction. Cf. ; .
Petitioners' next contention is that the transfer by Hobbs and associates of their oil properties to the Hobbs Oil Company, a joint stock association, *1365 was a taxable transaction completed in 1919, and that the value of that stock so received in 1919, rather than the cost of the properties so exchanged for said stock, is the proper basis for determining the profit on the sale of the Hobbs Oil Company stock in 1920 to C. N. Haskell and associates.
In determining the gain of petitioners in the Haskell transaction, the respondent took as his basis the cost of the property which petitioners conveyed to the Hobbs Oil Company, while it is contended by petitioners that the proper basis was the fair market value of the Hobbs Oil Company stock on the date of its issue, December 15, 1919; that said stock was worth more on that day than they received for it; and that a loss was sustained rather than a gain.
*252 We do not agree to this contention. The organization of the Hobbs Oil Company and the transfer to it of the lands and leases was merely a part of one main transaction, which was to sell certain oil lands and interests in oil lands which were specified in the contract, plus 75 per cent of the stock in the Texas Chief Oil & Gas Company, for a consideration of $2,100,000 cash and $600,000 capital stock of the Delaware Company. *1366 The fact that to perform the contract the organization of a common law trust or association was resorted to as a means to carry through the deal, does not alter the character of the transaction. There was no intention on the part of Hobbs or his associates to effect an exchange of their oil lands for stock in the Hobbs Oil Company, but their intention was to make a sale of their lands to Haskell and the Delaware Company by which they were to receive a large part of the agreed purchase price in cash and the balance in stock of the Delaware Company. All the shares of stock of the Hobbs Oil Company were issued to Hobbs and by him immediately sent to New York for delivery to the Delaware Company to be held by it as a part of its own property. No owner of the oil lands and leases conveyed to the Hobbs Oil Company had any beneficial interest in or power of disposition over the stock, as it belonged to the Delaware Company as soon as issued. The interest of the owners of the oil lands and leases conveyed to Hobbs Oil Company was in the consideration which they were to receive under the main contract and supplements thereto. We hold that the respondent was correct in fixing, as the basis*1367 for the calculation of gain, the cost of the oil properties to petitioners. ; certiorari denied, ; .
Petitioners' next contention is that $800,000 of the notes received in 1920 in connection with the Haskell transaction and secured by a lien on the Hobbs Oil Company properties should be valued at not more than $300,000 for the purpose of fixing the profits on the Hobbs-Haskell transaction. Notwithstanding the testimony of some witnesses at the hearing that the fair market value of these notes was considerably less than their face value, we do not think petitioners have overcome the prima facie correctness of respondent's determination that the notes were worth their face value. We think on this point it is sufficient to say that the notes were the unconditional promises to pay. They were negotiable and $650,000 of these notes were paid during 1920 and $150,000 early in January, 1921, and the nonnegotiable note for $100,000, which is not in controversy, was settled some years later. We have had the respondent's valuation of these notes*1368 before us once before in , and we there sustained the respondent, and that case was affirmed *253 in . There is no substantial difference, we think, in the evidence in the instant case from that which we had before us in , and respondent's action is approved.
Petitioners' next contention is that they should be taxed with only so much of the commissions in the Haskell transaction as Hobbs received in 1920. Respondent included $23,820.13 as the amount which petitioners received in 1920 on account of these commissions. There has been no adequate evidence to rebut the correctness of the determination of the Commissioner on this point and accordingly we approve this determination.
Petitioners further contend that the 500 shares of Texas Chief Oil & Gas Company stock transferred by Henry Hobbs to his wife in 1919 constituted a gift and made that stock her separate property; that the basis for determining taxable profit on the subsequent sale of these shares of stock was their value at the date of gift; and that no part of the*1369 proceeds of sale can be considered as taxable income to Henry Hobbs. The facts with reference to this transaction have been fully stated in our findings of fact and need not be repeated here. We think they evidence a gift from Hobbs to his wife of his interest in these 500 shares of stock. And the gift took place before there was ever any talk of a sale of such shares to C. N. Haskell and associates. The shares of stock were community property of which Mrs. Hobbs was already the owner of 250 shares. As to these 250 shares, the gain will be the difference between their cost, of $2,500 and their sale price of $20,000, amounting to $17,500. The basis for the other 250 shares is their market value at the date of the gift, which we found to be $25,000. None of the profit resulting from the sale of these particular 500 shares of stock in Texas Chief Oil & Gas Company was income to Henry Hobbs, because he had parted with his title to them before the sale took place.
Petitioner presents an assignment of error to the effect that the 5,000 shares of stock in the Delaware Corporation obtained from Haskell in 1920, as the result of a telegram sent Haskell by attorney Britain and Henry*1370 Hobbs, constituted a gift and is not taxable; that the stock was never received by Hobbs, but went to his wife as her separate property and, if taxable at all, it is taxable to her and it should not be valued at more than $5 per share. We think the evidence shows that the payment of these shares of stock was in the nature of compensation for services performed or to be performed and was not intended as a gift. . Cf. Roy A. Meagent v. Bowers, decided by the Circuit Court of Appeals, Second Circuit, April 11, 1932. These shares of stock were first income to the community estate, even though Hobbs, after *254 Haskell had notified him that the 5,000 shares would be transferred to him, gave his interest in them to his wife and the shares were actually issued to her. .
Petitioner's next contention is that the sale of the Emmerich property in 1919 constituted a closed transaction taxable in that year; that the deferred payment of $300,000 to be made in oil was readily marketable and should be valued at its market value on that date, and that this value, with appropriate adjustments*1371 for collection thereon, constitutes the proper basis to determine profit or loss on the subsequent resale in 1920. The facts relating to this transaction are stated in our findings of fact.
No negotiable paper was executed and the $300,000 of deferred payment was payable only on the contingency that the oil was produced. We think the facts in the instant case with reference to the Emmerich Oil Company transaction are very similar to those in
In that case Garber and his associates had received $2,500,000 in oil certificates from Sinclair Oil Company, payable $500,000 each year. The certificates were nonnegotiable. Garber made his income-tax returns on the cash receipts and disbursements basis just as petitioners have done in the instant case. He returned his part of the $500,000 due each year, if and when it was received, but after the statute of limitation had tolled, he sought to treat the whole transaction as complete in 1918 and contended that all of it was taxable in that year. This the court refused to allow, saying:
Counsel for the respondent [petitioner below] cite a number of cases holding that where property*1372 is exchanged for negotiable paper or other property that can be readily liquidated, the profit is realized and taxable. No claim, however, is made that the Sinclair agreement was a negotiable instrument.
Indeed, the Sinclair transaction was hedged about with conditions, not only as to time of performance, but as to certainty of performance.
* * *
The facts and the law in the instant case are identical with those in Commissioner of Internal Revenuev. M. C. Garber and related cases, decided by the Tenth United States Circuit Court of Appeals on March 14, 1931, . The respondents in that case were the associates of the respondent in the present suit. In that case, the court, holding, as we do, that the trilateral transaction whereby the taxpayers sold their Garfield oil stock for $500,000 cash and $2,500,000 in deferred payments, gave rise to no income in 1918 save as to the cash payment, said: [The court here quotes from the opinion of the Tenth Circuit.]
With this holding we are in entire accord. Such a view is based upon sound public policy as well as upon written law. It makes income taxable when it is received by the citizen.*1373 It precludes the possibility of a sudden change of theory after the statute of limitations has run. It does mathematical justice between government and taxpayer. [Italics supplied.]
*255 There is no evidence which shows that either of the petitioners returned any profits from the Emmerich Oil Company transaction on their 1919 income-tax returns, which was the year in which they now claim the transaction was completed and taxable.
Respondent, in computing income from this transaction in 1920, allowed full return of capital to petitioners before taxing any of the cash received in that year as income. In view of the evidence, we think the action of the respondent relative to this transaction was correct, and it is approved. Cf. .
Petitioners lay much stress on the fact that there was evidence that the contract with the Emmerich Oil Company, calling for future payments of $300,000 out of oil, had a fair market value at the date of the transaction of $200,000. But that is not conclusive.
As said by the court in *1374 (affirming the Board in ):
Of course, it is true that an obligation, even a conditional obligation, is in some sense property, and, like anything else that can be transferred, may be said to have a value, but nevertheless payment is made in exchange for title, and will never be made if it is not conveyed. To speak of the profit as resulting because its amount can be presently ascertained, though performance remains uncertain, seems to us a perversion of language. [Italics supplied.]
The remaining issue is as to the tolling of the statute of limitations. No question is raised as to the validity of any of the waivers, except the one signed by A. E. Myles as attorney in fact for Mrs. Hobbs. This was dated December 1, 1926, and referred to the years 1919, 1920 and 1921, and by its terms extended the limitation period to December 31, 1927.
The deficiency letter was mailed to Mrs. Hobbs on February 24, 1927, and was in time, if the waiver is valid. A. E. Myles was a tax accountant and had charge of income-tax matters for the petitioners for the years in question, under*1375 a written power of attorney which was filed with the Bureau of Internal Revenue and is copied in our findings of fact. Petitioners contend that the waiver is invalid because under the power of attorney Myles was not authorized to sign the waiver because (1) the power was joint to represent both petitioners and he was not authorized to represent one, (2) his authority was to represent petitioners only in the "determination and adjustment" of tax liability, and this does not authorize signing a waiver, and (3) there is no specific authority given to sign waivers.
We hold that Myles had authority to sign the waiver. The general rule is that every general power implies every particular power necessary to its exercise or performance. Undoubtedly the object *256 of the employment of Myles and the power of attorney given him was to put the determination and adjustment of petitioners' taxes for 1919 and subsequent years in Myles' charge and he was clothed with any and all power necessary to accomplish that purpose successfully. He was expressly authorized "to enter into any and all such agreements, compromises and settlements" and "to sign our names to any or all such agreements, *1376 compromises and settlements." The waiver was an agreement, or consent in writing, in furtherance of negotiations with reference to petitioners' tax liability for the years covered by the power of attorney. One of its objects was to prevent an arbitrary jeopardy assessment and obtain time for a calm deliberative consideration of the questions involved.
We think it was incidental to the general power to adjust and settle the taxes that Myles had the right to sign the waiver and that it was valid. , . It follows that limitation has not barred the deficiencies asserted herein, nor the collection of the unpaid balances on taxes for 1920 against either or both petitioners.
Decision will be entered under Rule 50.