*2221 The petitioner acquired certain real estate in 1911 through the issuance of its stock therefor. Neither the fair market value of the real estate nor of the stock at that time is shown from the evidence. The real estate was sold by the petitioner in 1924 and the Commissioner determined a gain on such sale of the difference between the selling price and a fair market value on March 1, 1913, as determined by him. Held, that in the absence of the production of satisfactory evidence on the part of the petitioner as to the cost of the property sold or its fair market value on March 1, 1913, the Commissioner's action is approved.
*1267 The Commissioner determined a deficiency in income tax for 1924 in the amount of $4,336.73. The petitioner assigns as error that the Commissioner in making his determination erroneously used the fair market value on March 1, 1913, instead of cost as the *1268 basis of gain or loss on the sale of property acquired prior to March 1, 1913, and sold in 1924.
FINDINGS OF FACT.
The petitioner is a California corporation*2222 with its principal office at San Jose. It was incorporated in January, 1911, with an authorized capital stock of $500,000, divided into 5,000 shares of the par value of $100 each. On February 2, 1911, the entire capital stock was subscribed for by E. McLaughlin and members of his family as follows:
| Shares | |
| E. McLaughlin | 4,600 |
| M. A. Auzerais | 100 |
| A. O. Scheller | 100 |
| C. M. Brooke | 100 |
| W. M. Leet | 100 |
In 1903, E. McLaughlin purchased a lot on the southwest corner of Turk and Jones Streets (hereinafter referred to as the "Turk and Jones Streets property"), paying therefor $160,000. The aforementioned lot and various other pieces of real estate, then owned by the said McLaughlin in the Counties of Santa Clara, San Francisco and Los Angeles, California, were conveyed on February 2, 1911, to petitioner in full payment for its entire capital stock of $500,000, which was issued to the subscribers, and in the amounts, shown above. The above-mentioned members of the McLaughlin family thus became the sole stockholders of the petitioner and they also constituted its board of directors. In conveying the various pieces of property to the petitioner, it was agreed that*2223 the cost price therefor to the grantor, aggregating $784,500, would be accepted as the cost price to the petitioner and the properties were accordingly so entered on the petitioner's books. The agreed purchase price of the Turk and Jones Streets property was therefore $160,000, which was paid for in stock as shown above.
The petitioner sold the Turk and Jones Streets property in 1924 for $134,229.21 and claims a loss on such sale of the difference between the aforementioned cost price to it in 1911 of $160,000 and the foregoing sales price. The Commissioner determined the March 1, 1913, value of the property to be $126,500 and that, since it was not shown that the cost in 1911 was in excess of that amount, the petitioner is taxable in 1924 on the difference between $126,500 and $134,229.21.
OPINION.
SEAWELL: The record in this case is far from being satisfactory. E. McLaughlin in 1903 purchased the Turk and Jones Streets property *1269 for $160,000, and in 1911 he caused the petitioner to be organized and all its stock, aggregating $500,000 par value, to be subscribed for in the names of himself and his four daughters, as shown in the findings of fact, the subscribers*2224 becoming not only the sole stockholders, but also the board of directors of the corporation as well. The board of directors and stockholders, acting for the corporation, purchased in 1911 from E. McLaughlin (who owned 92 per cent of the corporation's stock) this Turk and Jones Streets property for the agreed price of $160,000 and also many other parcels of real estate at the cost price to the grantor, all of it aggregating $784,500. In payment for this property so conveyed by E. McLaughlin the corporation issued all its capital stock to the subscribers, as shown in the findings of fact. In 1924 the Turk and Jones Streets property was sold by the corporation, the petitioner herein, the stock of which was still held by the original subscribers in their several amounts as subscribed, for the sum of $134,229.21.
The petitioner, relying upon its conception of the law of the case - that the purchase price of the Turk and Jones Streets property as agreed upon by the petitioner and the said E. McLaughlin is the basis for determining gain or loss, neglected to show the value or amount of the stock paid for the land, or the value of the land either at the time of the conveyance to the*2225 petitioner or on March 1, 1913. The fact that the Turk and Jones Streets property was set up as an asset on the corporation's books at $160,000 and that this lot together with the other parcels of land conveyed were set up at a value far in excess of the amount of the capital stock of the corporation, does not show the value of the land as a whole or of any of the parcels. While the statute (section 204(b) of the Revenue Act of 1924) makes the cost or fair market value on March 1, 1913, of the land acquired before March 1, 1913, whichever is greater, the basis for determining gain or loss, we find that evidence, both of the cost and of the fair market value on March 1, 1913, of the Turk and Jones Streets property is absent from the record in this case. Although it was agreed between the corporation and E. McLaughlin that the purchase price of said property should be $160,000, unless the value of the stock paid for the land can be ascertained, we can not know what the corporation actually paid for it - that is, the cost of the land to the petitioner in 1911. If the value of the assets of the corporation had been shown the value of the stock issued might have been determined, but*2226 this proof was also absent in this case.
The Commissioner having ascertained and determined the March 1, 1913, value of the land to be $126,500, and the petitioner having failed to show the value at said time to be different, and having failed to *1270 show the cost of the land to the petitioner when acquired prior to 1913, under the law applicable in this case the Commissioner's determination must be approved.
Judgment will be entered for the respondent.