*3458 1. The Commissioner was authorized to determine the value of petitioner's stock in Ford Motor Co. James Couzens,11 B.T.A. 1040">11 B.T.A. 1040, followed.
2. The fair market price or value of such stock determined.
3. A dividend received in 1919 by petitioner, a stockholder of Ford Motor Co., as a result of the decree of a state court requiring distribution of surplus on hand in 1916, held to be within petitioner's taxable income of 1919.
*755 BEFORE STERNHAGEN, MARQUETTE, and VAN FOSSAN.
This is one of nine proceedings, of which that of James Couzens, Docket No. 10438, was decided *3459 May 5, 1928, . As to this petitioner, the Commissioner determined a deficiency of $84,404.83 for 1919, and notified petitioner under section 274(a), Revenue Act of 1924. He made no jeopardy assessment under section 274(d) as he did in the Couzens case.
This proceeding presents the question (1) of respondent's authority to make a determination of value on March 1, 1913, of the petitioner's stock in the Ford Motor Co., (2) of the fair market price or value of such stock, and (3) a question not at issue in the Couzens case, whether the amount of $19,275.39 received by petitioner in 1919 by way of dividend from the Ford Motor Co. pursuant to the court's decree in Dodgev. Ford Motor Co. was within her taxable income for the year 1919 as determined by respondent.
FINDINGS OF FACT.
1. The petitioner is a resident of the City of Highland Park, Wayne County, Mich., her address being 50 Connecticut Avenue.
2. On March 1, 1913, and prior thereto, and until September 2, 1919, the petitioner was the owner of 20 shares of the stock of the Ford Motor Co., a Michigan corporation, of a total of $20,000 shares of such stock outstanding.
*756 *3460 3. Shortly before April 15, 1919, Henry Ford and Edsel Ford, who were then the owners of approximately 58 1/2 per cent of the capital stock of the Ford Motor Co., desired to purchase the remaining 41 1/2 per cent of the stock owned by the minority stockholders, including that owned by petitioner. Without the knowledge of the petitioner they engaged the services of the Old Colony Trust Co. of Boston and its representatives to purchase the stock for them as undisclosed principals. Pursuant to such arrangement and immediately prior to April 15, 1919, Stuart W. Webb, then an officer of and acting for the Trust Company and the undisclosed principals, accompanied by other representatives of the company, went to Detroit, Mich., to negotiate for the purchase of the stock of all the minority stockholders of the Ford Company, including the 20 shares thereof then owned by the petitioner.
4-28. These findings of fact are respectively identical with findings of fact P4 to P28, inclusive, in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
29. In April, 1919, Henry S. Morgan, secretary to James Couzens, wrote a letter to*3461 John W. Anderson, another stockholder in the Ford Motor Co., who was then in California, asking if he was interested in disposing of his stock. He recited that a Mr. Webb, purporting to represent the Old Colony Trust Co., had been in Detroit, and that he had told Webb that he did not think any of the stockholders would be interested in selling in view of the tax situation and the uncertainty of fixing a March 1, 1913, value. To this Anderson replied by wire that the matter was one which he would prefer to allow to remain open until his return to Detroit early in May, and that in his judgment it was the worst time in the history of the country in which to sell anything involving the value represented by the Ford Motor Co. stock. On Anderson's return to Detroit, Morgan informed him that after he had talked with Webb as stated in his letter, Webb had disappeared and had not been seen since. Later Morgan showed Anderson a form of power of attorney to be signed by the Ford minority stockholders authorizing Morgan and Luman W. Goodenough to enter into negotiations with Webb for the sale of the stock on the basis of $12,500 a share. On several occasions, still later, Morgan, in response*3462 to inquiries from Anderson as to what Couzens had done. informed him that he had done nothing.
30. On or before June 14, 1919, James Couzens, acting for the petitioner, was informed that Henry Ford and Edsel Ford were the principals seeking to purchase the stock, and he was shown a copy of the letter from Commissioner Roper to Ballantine.
31. Under date of June 14, 1919, James Couzens, acting for the petitioner, signed the following agreement:
JUNE 14, 1919
*757 In consideration of one dollar and other valuable consideration to me paid by Edsel B. Ford of Detroit Michigan the receipt of which I acknowledge I hereby give to said Ford an option for the purchase of all my stock in the Ford Motor Co. of Michigan viz. 2180 shares and further agree that my sister Mrs. Hauss shall also sell at the same time if this option is exercised her holdings of 20 shares in said Company. The price to be paid is $13,000.00 [sic] ex any dividends actually declared prior to consummation of the purchase and also ex any dividends which may be decreed to be paid in the suit of John F. Dodge et al vs said Ford Motor Co. which dividend said Ford agrees if not declared prior to delivery*3463 of the stock to assign to us or to collect for us at my option.
Said option shall be exercised by written notice to me at my office Dime Bank Building Detroit Mich. and at the time fixed in said notice not less than three days after the delivery of said notice I agree to deliver all said stock to the Detroit Trust Co. of DetroitMichigan at its office in Detroit with proper transfers in blank to be delivered by said Trust Company to said Ford upon payment of the purchase price above stated.
In executing this option I recognize that it is desired by said Ford for special reasons particularly for the purpose of obtaining for himself and his father through personal ownership and stock controlled as nearly complete ownership of said company as may be possible and that its purpose can and is to be accomplished only by the specific performance of this agreement and not by damages for breach of agreement to deliver.
This option is not to be exercised before Sept. 1, 1919 and shall expire on Jany. 1st 1920 pending the option including the entire time between its date and the exercising of the option I further agree as director and stockholder to cooperate with said Ford in all matters*3464 connected with said company and particularly to consent to the purchase by the company of any and all stock of the company except stock now owned by said Ford or his father or by Henry Ford & Son Inc. of New York, and to the issue of notes by the company for such purchases and the use of the funds of the company.
My obligation hereunder shall enure to the benefit of the assigns or executors or administrators of said Ford and shall be binding upon me my executors and administrators.
I authorize said Ford his executors administrators or assigns to give any notices in relation to the sale which may be appropriate under the bylaws and I waive my right to receive notice of any proposed sale of stock to said Ford or any party approved by him prior to the expiration of this option and I agree upon request to procure for said Ford similar authority and waiver from my sister.
In witness whereof I hereto set my hand and seal.
JAMES COUZENS.
32. On July 1, 1919, Anderson called Morgan and asked him what Couzens had done. Morgan replied that he had seen Couzens who had told him to tell Anderson to go ahead on his own hook, not to bother about Couzens at all, and that he would*3465 attend to his side of the transaction himself.
33. Thereafter, on or about September 2, 1919, the petitioner concluded a sale of her 20 shares of said stock in the Ford Motor Co. to the Ford Motor Co., a Delaware corporation, the assignee of the *758 option of June 14, 1919, for the sum of $260,000, or at the rate of $13,000 a share.
34. In 1919 there was paid to the petitioner the sum of $19,275.39, this being her share of the dividend declared by the Ford Motor Co. pursuant to the court decree in the case of John F. and Horace Dodge v. Ford Motor Co., et al.
35. On March 1, 1920, the petitioner was granted an extension of 30 days from March 15, 1920, for the filing of her personal income-tax return for 1919. On April 14, 1920, the petitioner filed her return for the calendar year 1919, and in that return included in income the sum of $70,213.20 as the profit derived from the sale of the Ford Company stock, this amount being the difference between the sale price of $260,000, and the March 1, 1913, value of the stock, $189,786.80, computed on the basis of $9,489.34 a share, in accordance with the letter of Commissioner Roper to Ballantine. This return was*3466 received in Washington, D.C., by the Bureau of Internal Revenue, on June 1, 1920.
36. The total purchase price which the petitioner paid for the 20 shares of stock owned by her was less than the March 1, 1913, fair market price or value thereof. She acquired the stock as follows: On June 18, 1903, her brother, James Couzens, as one of the original incorporators of the Ford Motor Co., subscribed for 25 shares of stock for the price of $2,500, which he paid $1,000 in cash and $1,500 in four-months' notes, which notes he thereafter paid in full. One share of this stock he held for the petitioner, in consideration of $100 therefor paid to him by her. On or about October 22, 1908, James Couzens received a stock dividend of 1900 per cent on the one share of stock held by him for her, and prior to March 1, 1913, transferred and assigned the 20 shares of stock to her without further consideration.
37. Commissioner Roper went out of office on March 31, 1920, and was immediately succeeded by Commissioner William M. Williams.
38. On June 8, 1920, Commissioner Williams assessed against the petitioner an income tax for 1919 of $23,338.84, being the amount of income-tax liability*3467 shown by the return, and this was paid by petitioner as follows:
| By check with original return | $5,863.93 |
| By check on June 15, 1920 | 5,863.93 |
| By check on September 13, 1920 | 5,863.93 |
| By check on December 16, 1920 | 5,851.51 |
| Total paid | 23,443.30 |
| Original assessment | 23,338.84 |
| Overpayment subsequently refunded | 104.46 |
On June 26, 1920, a 25 per cent penalty of $5,834.71 was assessed against the petitioner under the erroneous assumption that no extension *759 of time for filing the return had been granted. A claim for abatement was filed and was allowed in full. A certificate of overassessment was issued on June 9, 1922, and the overpayment of $104.46 was refunded on the same date.
39-43. These findings of fact are respectively identical with findings of fact P39 to P43, inclusive, in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
44. In the latter part of 1920 the return of James Couzens was referred to I. I. Phillips, chief of subsection No. 8, Personal Audit Section, for superficial audit. He made an examination of the return, found that the basis of the computation of gain on*3468 the sale of the stock was not set forth therein, and prepared the following letter which was sent to Couzens:
Office of
Commissioner of Internal Revenue
Address Reply to
Commissioner of Internal Revenue
And Refer to
IT:G:P-8
IIP
TREASURY DEPARTMENT,
Washington, December 30, 1920.
Mr. JAMES COUZENS,
2239 Dime Bank Bldg.,
Detroit, Michigan.
SIR: Reference is made to your income tax return, Form 1040, filed for the year 1919.
It is requested that you inform this office as to the manner in which you arrived at the profit of $8,622,096.70 from the sale of the stock held by you in the Ford Motor Co.
It is important this letter receive your prompt attention and that reference be made in your reply to the symbols at the beginning of this letter.
Respectfully,
G. V. NEWTON,Deputy Commissioner.
By I. I. PHILLIPS,
For Chief of Section.
45-51. These findings of fact are respectively identical with findings of fact P45, P46, P50, P54, P55, P56, and P61, in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
52. Commencing on May 26, 1921, Internal Revenue Agent*3469 J. L. Chatterton made a field investigation concerning the income-tax liability of the petitioner for 1917, 1918, 1919, and 1920. He devoted three days to the investigation, which was completed on June 3, 1921. On that date he rendered a written report of his investigation to *760 C. M. Justice, Internal Revenue Agent in Charge, Detroit, Mich., who duly transmitted it to the Commissioner. On July 19, 1921, Justice transmitted a copy of the report to the petitioner for her information. With reference to the profits derived by the petitioner from the sale of her stock, the revenue agent reported that the sale price of the 20 shares was $260,000, or at the rate of $13,000 a share instead of $12,500 a share, the price paid to most of the minority stockholders, that the March 1, 1913, value thereof as returned was $189,786.80, and that the March 1, 1913, value thereof as adjusted was $189,786.80. In the revenue agent's report the net income for 1919 subject to surtax was increased by $19,275.39, said to be the amount of the dividend received by petitioner from the Ford Company and which she had not included in the income reported in her original return.
53. The Commissioner*3470 proposed, by reason of the omission of the said $19,275.39, to assess against the petitioner a net amount of $9,543.30, being the sum of $9,138.76 tax and a 5 per cent penalty of $456.94, less an overpayment of $52.40 for 1920. The original return not being available, a "dummy" return was prepared to serve as a basis for making the assessment. The following letter was written to petitioner:
IT:PA:FR
DECEMBER 17, 1921.
Mrs. ROSETTA V. HAUSS,
50 Connecticut Avenue,
Highland Park, Michigan.
MADAM: An examination of your income tax returns for 1917 to 1920, inclusive, in connection with the report of the Internal Revenue Agent in Charge at Detroit, Michigan, dated July 19, 1921, discloses the following changes in your tax liability:
| 1919 additional tax | $9,138.76 | |
| 5% penalty | 456.94 | |
| 1920 overpayment | $52.40 | |
| Total | 9,595.70 | 52.40 |
| Net additional tax liability | 9,543.30 |
It is noted that you have been furnished a copy of the agent's report showing the adjustments made in your returns and the resulting changes in your tax liability. The agent's report has been approved by this office with the following exceptions:
1919.
The correction*3471 of errors in the agent's computation of your tax liability reduces the additional tax recommended for this year from $12,690.75 to $9,138.76.
As the understatement of the tax on your return is attributable to negligence as defined by the Regulations, under the provisions of Section 250(b) of the Revenue Act of 1918, a penalty of 5% of the total amount of the deficiency in *761 tax liability, plus interest at the rate of 1% per month on the amount of such deficiency of each installment, from the time the installment was due, attaches. The 5% penalty will be included in the assessment and the interest will be computed and demanded by the collector at the time you pay the assessment.
In accordance with Section 252 of the Revenue Act of 1918, the overpayment for 1920 has been applied against the additional tax found due for 1919, as indicated by the synopsis in paragraph one.
The additional tax as noted above will be assessed thirty days subsequent to the date of this letter and the Collector of Internal Revenue for your district will notify you as to the time and manner of making payment.
Respectfully,
E. H. BATSON,Deputy Commissioner.
By:
Head of Division.*3472
54. The proposed assessment was not made against the petitioner, although the certificate of overassessment of June 9, 1922, purports to take such an assessment into account in arriving at the amount of overassessment.
55-87. These findings of fact are respectively identical with findings of fact P67 to P74, inclusive, P92 to P115, inclusive, and P127, in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
88. On March 12, 1925, the following letter was sent to the petitioner:
Office of
Commissioner of Internal Revenue
IT:PA-5
IIP
TREASURY DEPARTMENT,
Washington, March 12, 1925.
Mrs. ROSETTA V. HAUSS,
50 Connecticut Avenue,
Highland Park, Michigan.
MADAM: An adjustment of your income tax return filed for the year 1919 discloses a deficiency in tax amounting to $85,267.83 as shown in the following statement:
| Block D as reported: | |
| 20 shares Ford Motor Company stock - | |
| Sale price | $260,000.00 |
| March 1, 1913 value | 189,786.80 |
| Profit | 70,213.20 |
| March 1, 1913 value reported | 189,786.80 |
| March 1, 1913 value corrected | 52,680.00 |
| Profit understated | 137,106.80 |
| Normal income reported | 78,583.90 |
| Corrected income | $215,690.70 |
| Less personal exemption | 2,000.00 |
| 213,690.70 | |
| Amount taxable at 4% | 4,000.00 |
| Amount taxable at 8% | 209,690.70 |
| Normal tax 4% | 160.00 |
| Normal tax 8% | 16,775.26 |
| Surtax on $223,602.35 | 91,671.41 |
| Total tax | 108,606.67 |
| Tax reported | 23,338.84 |
| Additional tax | 85,267.83 |
*3473 *762 If you protest against the determination of the deficiency the Bureau desires to proceed in the regular manner to the consideration of any information submitted by you. However, the period within which the Commissioner may assess additional taxes for the year 1919 will expire in the near future, and in order to avoid the necessity of making an immediate assessment prior to such consideration, it is requested that you sign and return the enclosed form of waiver to this office within fifteen days of the date of this letter.
In the event the waiver is not received within the time stated above for its filing, it will be necessary to make assessment under the provisions of Section 274(d) of the Revenue Act of 1924.
Respectfully,
J. G. BRIGHT,Deputy Commissioner.
89. On March 27, 1925, petitioner's attorney sent a telegram to the Commissioner stating that petitioner was out of the city, that the waiver had been sent to her for signature, and requesting that assessment be deferred until the waiver was received. The Commissioner replied by telegraph that no assessment would be made before April 5.
90. On March 30, 1925, the petitioner wrote the following*3474 letter to the Commissioner:
DAYTONA, FLORIDA, March 30, 1925.
Mr. J. G. BRIGHT,
Deputy Commissioner,Washington, D.C..
DEAR SIR: I beg to acknowledge receipt of your letter of the 12th, IT:PA-5-IIP, advising that an adjustment of my income tax return for 1919 discloses a deficiency in tax, amounting to $85,267.83.
Agreeable to your request and pursuant to your conversation with my attorney, Judge Arthur J. Lacy, of Detroit, Michigan, over the telephone on March 27th, I am enclosing you herewith the waiver, properly signed, which you requested.
I made my return on April 14th, 1920, so I assume from the understanding you had with Judge Lacy, that this waiver will reach you in time so it will not be necessary for you to make an additional assessment in order to protect *763 the interest of the government. Judge Lacy will take this matter up with you for consideration in your department and he will communicate with you direct.
Thanking you very much, I remain,
Respectfully yours,
ROSETTA V. HAUSS.
91. Attached to this letter was the following waiver:
IT:PA-5
IIP
MAR. 30, 1925.
INCOME AND PROFITS TAX WAIVER
(For taxable years ended*3475 prior to March 1, 1921)
In pursuance of the provisions of existing Internal Revenue Laws Mrs. Rosetta V. Hauss, a taxpayer of 50 Connecticut Avenue, Highland Park, Michigan, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year 1919 under existing revenue acts, or under prior revenue acts. This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1925, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
ROSETTA V. HAUSS,
Taxpayer.
By
D. H. BLAIR,Commissioner.
92. The proposed additional tax of $85,267.83 was based upon the reduction*3476 of the March 1, 1913, value of the Ford stock from $9,489.34 per share, as returned by petitioner, to $2,634 per share.
93. Under date of June 16, 1925, Acting Commissioner of Internal Revenue Nash wrote a letter to James Couzens informing him that the value of $2,634 was computed as follows:
| Average annual income for the years 1910, 1911 and 1912 | $8,602,000 |
| Average annual income for the years 1916, 1917 and 1918 | 43,500,000 |
| Value upon the basis of the sale in 1919, 20,000 shares at | |
| $13,320 | 266,400,000 |
| Average income prior to sale, $43,500,000, is to the total | |
| value as at the time of sale, $266,400,000 as the average | |
| income prior to 1913, $8,602,000, is to the fair market | |
| value of total stock as of March 1, 1913, ($52,680,000). | |
| Fair market value as of March 1, 1913, of 20,000 shares, | |
| (shown above) | 52,680,000 |
| Fair market value of each share | 2,634 |
*764 94. On the same day Acting Commissioner Nash wrote a letter to James Couzens advising him that the basis used by Talbert in computing a March 1, 1913, value of $9,489.34 a share was as follows:
| Actual earnings for 1912 | $14,119,989.87 |
| Estimated earnings for 1913, based on earnings for 2 months | |
| (January 1 to February 28, 1913, $ 3,972,896.17) | 23,837,377.02 |
| 37,957,366.89 | |
| Average annual earnings of 20,000 shares | 18,978,683.45 |
| Average earnings of each share | 948.934 |
| Capitalized at 10% | 9,489.34 |
*3477 95. Under date of November 19, 1925, the Commissioner sent to the petitioner the following letter, which letter forms the basis of this proceeding:
TREASURY DEPARTMENT,
Washington, Nov. 19, 1925.
Office of
Commissioner of Internal Revenue
IT:PA:3-60D
LWB:307
Mrs. ROSETTA V. HAUSS,
50 Connecticut Avenue, Highland Park, Michigan.
MADAM: The determination of your income tax liability for the year 1919, as set forth in office letter dated March 12, 1925, has been changed to disclose a deficiency in tax amounting to $84,404.83. The adjustments made are shown in detail in the attached statement.
In accordance with the provisions of Section 274 of the Revenue Act of 1924, you are allowed 60 days from the date of mailing of this letter within which to file an appeal contesting in whole or in part the correctness of this determination. Any such appeal must be addressed to the United States Board of Tax Appeals, Washington, D.C., and must be mailed in time to reach that Board within the 60-day period.
Where a taxpayer has been given an opportunity to appeal to the Board of Tax Appeals and has not done so within the 60 days prescribed and an assessment has*3478 been made, or where a taxpayer has appealed and an assessment in accordance with the final decision on such appeal has been made, no claim in abatement in respect of any part of the deficiency will be entertained.
If you acquiesce in this determination and do not desire to file an appeal, you are requested to sign the inclosed agreement consenting to the assessment of the deficiency and forward it to the Commissioner of Internal Revenue, Washington, D.C. for the attention of IT:PA:3-60D:LWB:307. In the event that you acquiesce in a part of the determination, the agreement should be executed with respect to the items agreed to.
Respectfully,
D. H. BLAIR,Commissioner.
By C. R. NASH,
Assistant to the Commissioner.
Inclosures:
Statements.
Agreement - Form A.
*765 96. Attached to the letter was the following statement:
STATEMENT
IT:PA:3-60D
LWB:307
In re: Mrs. Rosetta V. Hauss,
50 Connecticut Avenue,
Highland Park, Michigan.
Deficiency in Tax
1919 $84,404.83 (Waiver filed 4/1/25)
A reaudit of your return for 1919 discloses the profit understated from the sale of 20 shares of Ford Motor Company stock to be $118,830.00 instead*3479 of $137,160.80 as determined by the audit as stated in office letter dated March 12, 1925. The decrease in the profit in question is due to the fact that the March 1, 1913 value of the said stock has been determined to be $3,547.84 instead of $2,634.00 as considered in the former audit. The reaudit further discloses that dividends amounting to $19,275.39 from the Ford Motor Company were not included in your income. This amount is, therefore, included in your income subject to surtax.
The corrected total net income is $224,600.91 upon which the total tax liability is $107,743.67, representing $160.00 normal tax at 4%, $15,313.11 normal tax at 8% and $92,270.56 surtax. The records of this office disclose the tax assessed to be $23,338.84. The adjustment of these items discloses an additional tax due of $84,404.83.
Payment of the tax should not be made until a bill is received from the Collector of Internal Revenue for your district and remittance should then be made to him.
97. Under date of November 19, 1925, the Commissioner wrote the following letter to James Couzens:
NOVEMBER 19, 1925.
SOL:
Hon. JAMES COUZENS,
2123 First National Bank Building,
Detroit,*3480 Michigan.
SIR: Receipt is acknowledged of a letter, dated November 7, 1925, from Mr. Arthur J. Lacy, wherein it is requested that you be furnished with information as to the following:
The basis and method by which the March 1, 1913 value of the Ford Motor Company stock is now fixed at $3,547.84 a share, and what factors were taken into account and what figures were used in making that computation.
In compliance with this request, you are advised that the maximum value of $3,547.84 for each share of Ford Motor Company stock as of March 1, 1913, has been determined by the application of the method outlined in a memorandum of the Committee on Appeals and Review (A.R.M. 34 (third method), ) to the results of operations of the Ford Motor Company during the period January 1, 1909 to February 28, 1913.
The factors and figures taken into account are as follows:
| Average annual earnings | $7,882,133.27 |
| Deduct: 8% on average net tangibles of $7,704,973.94 | 616,397.92 |
| Excess earnings attributable to intangibles | 7,265,735.35 |
| Intangibles - excess earnings capitalized at 15% | $48,438,235.67 |
| Add: net tangibles on March 1, 1913 | 22,518,635.02 |
| Total value of 20,000 shares | 70,956,870.69 |
| Value of each share | 3,547.84 |
*3481 D. H. BLAIR, Commissioner.
*766 98. There are no notes, memoranda or letters of an interdepartmental character with reference to the memorandum submitted to the Secretary of the Treasury by Thompson. The only consideration it received is indicated in a letter dated March 7, 1925, delivered to James Couzens by Commissioner Blair. This letter, to which was attached a copy of the memorandum submitted to Secretary Mellon by Thompson, is as follows:
MARCH 7, 1925.
Hon. JAMES COUZENS,
United States Senate.
MY DEAR SENATOR COUZENS: I enclose herewith a copy of a memorandum which has been received in the Treasury Department in connection with your 1919 income taxes. An examination of your return for that year shows that the figure mentioned in the memorandum as the March 1, 1913, market value of the stock for taxation purposes approximates the value upon which the tax was originally assessed, but there appears nothing in the files of the Bureau to sustain the correctness of this value. The memorandum, on the other hand, makes out a prima facie case of too low a March 1, 1913, value. Being put upon notice the Bureau necessarily must take action to establish*3482 the correct value.
The Bureau records show that your return for 1919 was filed on March 13, 1920; the statute of limitations will, therefore, run on March 13, 1925, less than a week from today. In order that the Bureau may have time to investigate the information contained in the memorandum and that you may have an opportunity to present to the Bureau evidence tending to justify the figure taken for the March 1, 1913, value, it is suggested that you sign and return to me the enclosed waiver upon receipt of which you will be given ample opportunity to present your case to the Bureau.
In the event, however, that the Bureau does not receive the waiver promptly, in order to protect the United States it will be necessary to assess against you an additional tax based upon the information now available to the Bureau.
Under the practice in force hearing to review such an assessment may be had in the Solicitor's Office, and in the event the assessment is there confirmed you will, of course, have your appeal to the Board of Tax Appeals.
Very truly yours,
D. H. BLAIR, Commissioner.
99. At the time of delivering this letter to Couzens, it was not clear in Commissioner Blair's*3483 mind that a tax was due.
100. Stock in the Ford Motor Co. was also sold in 1919 by John F. Dodge, Horace E. Dodge, James Couzens, Horace H. Rackham, John W. Anderson, Paul R. Gray, David Gray, and Philip H. Gray, and the gain derived by each of these taxpayers from such sale as shown by his income-tax return was computed upon the basis of a value on March 1, 1913, of $9,489.34 per share. These returns were for *767 various purposes examined and audited, and investigations in respect thereof made, by officers of the Bureau of Internal Revenue at various times and no determination of a value different from the so-called Roper valuation figure of $9,489.34 was made in respect of any of such taxpayers, until 1925, after the receipt of the Thompson memorandum. In March, 1925, jeopardy assessments were made against Couzens, Anderson, Rackham, and the Grays. In April, 1925, notices of deficiency were sent to the executors of the estates of Horace E. Dodge and John F. Dodge. In these assessments and notices of deficiency the March 1, 1913, value of the stock, the basis for the computation of the tax, was changed to $2,634 a share. Subsequently, after hearings within the Bureau, *3484 the March 1, 1913, value was changed to $3,547.84 a share. Claims for abatement of the jeopardy assessments were in part allowed on that basis, and the revised value was stated in answers to petitions filed with the Bureau by the executors of the Dodge Estates.
101-292. These findings of fact are respectively identical with findings of fact P141 to P332, inclusive, in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
293. The fair market price or value on March 1, 1913, of the 20 shares of stock in the Ford Motor Co. which were owned by petitioner on that date and sold by her in September, 1919, was $200,000.
OPINION.
STERNHAGEN: This petitioner was in 1913 a stockholder owning 20 shares of the Ford Motor Co. which she had acquired by purchasing 1 share for $100 at the time of incorporation and later receiving 19 shares by way of stock dividend. She sold her holding in 1919 for $260,000, and upon her income-tax return for that year she stated a gain of $70,213.20 computed, under section 202(a)(1) Revenue Act of 1918, upon a basis of $189,786.80 taken as the fair market price or value at the rate of $9,489.34*3485 a share, which was the figure stated by Commissioner Roper in his letter to Ballantine. She omitted from her gross income the $19,275.39 dividend received from the Ford Company which was declared pursuant to the decree of the court in Dodge v. Ford Motor Co..
The respondent, in March, 1925, determined a deficiency of $85,267.83, but since the petitioner signed a so-called waiver extending the time for assessment until December 31, 1925, he made no assessment as he did in the case of James Couzens, Docket No. 10438. This deficiency of $85,267.83 resulted from the respondent's reduction of the basic value on March 1, 1913, of the Ford stock from $9,489.34 to $2,634 a share.
*768 Later, on November 19, 1925, respondent modified the deficiency from $85,267.83 to $84,404.83. This change resulted from a further change in the basic value of the Ford stock to $3,547.84 a share and the inclusion of the so-called Dodge v. Ford dividend of $19,275.39 in the net income subject to surtax.
The petitioner then duly filed her petition with this Board attacking this determination. She contests the respondent's power to find any value of the Ford stock on March 1, 1913, other*3486 than the figure of $9,489.34 stated by Commissioner Roper. She alleges that in fact the value was no less than that figure and relies upon evidence to prove its true value. And as to the $19,275.39, she contends that this was not within her income for 1919.
The views of the Board upon the respondent's right or power to determine a fair market price or value on March 1, 1913, of the petitioner's stock in the Ford Company are fully set forth in , in which the power was sustained. We have given careful consideration to the opinion handed down May 8, 1928, in . The court had before it on writ of error the directed verdict in the District Court founded upon the defendant's admission of the well-pleaded allegations of the petition. It did not have before it the voluminous record presented to the Board of the history of the controversy in the Bureau and was not called upon to review the Board's opinion, and there is no indication that such opinion was brought to the court's attention. We therefore adhere to the opinion expressed in *3487
The evidence as to the fair market price or value introduced by both petitioner and respondent was considered by the Board in , and we have found such fair market price or value to be at the rate of $10,000 a share. Thus the basis of gain for this petitioner was $200,000, and the gain was $60,000 instead of $70,213.20 as returned.
In the third issue presented, the petitioner contends that since, by decree of the Supreme Court of Michigan, the dividend was out of the cash surplus on hand at the close of the fiscal year ending July 31, 1916, it is taxable to petitioner as 1916 income at 1916 rates and not at the higher rates of 1919, when it was received. The Court of Claims in , and the United States District Court, Eastern District Michigan, in , had before them the same question arising out of the identical facts as they applied to two other stockholders of the Ford Company, and both courts decided that the dividends were taxable in 1919. We see no reason to*3488 reach a different conclusion here.
*769 Furthermore, the record before us is deficient as to the petitioner's method of accounting. It does not appear whether the method used was that of actual receipts and disbursements or otherwise, and the return in evidence shows an omission to fill in the blank space where this question should be answered. But under any accounting method, we are of opinion that the income was taxable in 1919 when the dividend was declared by the corporation and received by the petitioner. There was no constructive receipt, as contended by petitioner, before this time, for she had no dominion, control or use of the amount. There was no accrued income at least before the court's order segregating the surplus. Before that she had only the inchoate right of a stockholder, . The petitioner's argument that there was a constructive trust in 1916 is not sufficient to show her taxable in 1916. An ordinary corporate stockholder is not taxed under this statute merely because the corporation has a surplus which a court of equity may at his instance order distributed. And we think that section 220, Revenue*3489 Act of 1918, and section 3, Revenue Act of 1916, and nothing to the argument.
The petitioner's income for 1919 should include the $19,275.39 as a dividend subject only to surtax and as to this the respondent's determination is sustained.
Reviewed by the Board.
Judgment will be entered under Rule 50.
SMITH, MORRIS, ARUNDELL, and MILLIKEN did not participate in the consideration or decision of this proceeding.