*745 The petitioner paid almost the full current market price of securities transferred to him by a brother's partnership. Held, the petitioner bought the stock and did not receive it by gift. Section 113(a)(2) of the Revenue Act of 1928 is not applicable in determining the gain or loss from the transaction. Also, the basis to the petitioner is the cost to him and he realized net gain and is taxable thereon.
*264 This proceeding involves a deficiency in income tax for the year 1931 in the amount of $27,548.66. The only issue is the respondent's disallowance of a claimed loss of $130,693.50 on the sale of stock alleged to have been received by gift.
FINDINGS OF FACT.
The petitioner is a consultant on Federal and state taxation engaged in the practice of that profession in New York City.
The petitioner's brother, Richard P. Ettinger, was a member of a stock trading partnership, composed of himself and his wife, which traded in stocks on margin through the firm of Lamborn, Hutchings & Co. The partnership owned securities which had declined in value*746 to an extent more than sufficient to wipe out the net income of the partnership. The partnership transferred securities noted below to the petitioner and he paid amounts on each block of stock fixed by Richard Ettinger. Richard Ettinger arbitrarily determined the amounts to be paid by taking the market price for the stock to be transferred as of the date of transfer and then fixing the amount to be paid by petitioner at a few points under the market price. Richard Ettinger selected the stock to be transferred and transfers were made on successive dates between November 10 and December 18, 1931. In transferring the stock in each instance Richard would telephone his brother, Virgil, that he was transferring a block of stock subject to payment of a certain amount which the petitioner agreed to pay. Richard also telephoned his broker to transfer the stock to petitioner subject to payment of the amount. The petitioner then telephoned his broker to receive the stock and pay the amount out of the balance in his account. The petitioner's broker paid the amount out of petitioner's balance, or if there was not sufficient, made payment and was later paid by petitioner. The petitioner*747 deposited to the credit of his account with J. R. Timmins & Co. on the day before *265 the first transfer, $10,000. He also deposited $10,000 with Lamborn, Hutchings & Co. with whom he opened an account. The broker's recored show that in each transfer there was a delivery of securities out of the partnership account and a credit to the account in the amount of the payment from the petitioner; correspondingly the petitioner's account showed receipt of securities and a debit in the amount of the sum paid to the partnership by him.
The successive transfers to the petitioner are listed in the following table in chronological order, along with the amounts paid therefor from petitioner's account, and other pertinent information:
| Common stock transferred to petitioner | Cost to partnership | Market value 1 | Amount paid by petitioner | Difference between market value and amount paid by petitioner |
| 600 Southern Railway Co | $68,727.50 | $10,350.00 | $9,600 | $750.00 |
| 300 Chi., R.I. & Pac. Co | 34,842.50 | 3,262.50 | 2,400 | 862.50 |
| 200 Illinois Central R. Co | 13,347.50 | 2,375.00 | 2,000 | 375.00 |
| 100 Union Pac. R. Co | 29,135.00 | 7,500.00 | 7,000 | 500.00 |
| 200 General Electric Co | 12,435.00 | 5,000.00 | 4,400 | 600.00 |
| Total | 158,487.50 | 28,487.50 | 25,400 | 3,087.50 |
The petitioner soon after the receipt of each block of stock sold it on the exchange through his brokers and received a total of $27,229. In three cases he reacquired similar stock within 30 days after sale for $11,370 and resold the stock before the end of the year for $11,335 realizing a loss of $35. These transactions are summarized in the following table:
| Stock sold by petitioner before the end of 1931 | Proceeds of sale | Similar stock purchased within 30 days after sale | Purchase price | Proceeds of sale |
| 600 Southern Rwy. Co | $10,651.00 | 200 Southern Rwy. Co | $2,450 | $2,392 |
| 300 Chi., R. I. & P. R. Co | 2,815.50 | 200 Chi., R. I. & Pac. R. Co | 1,765 | 1,777 |
| 200 Illinois Central R. Co | 2,267.00 | |||
| 100 Union Pacific R. Co | 7,278.50 | 100 Union Pac. R. Co | 7,155 | 7,166 |
| 200 General Electric Co | 4,817.00 | |||
| Total | 27,829.00 | Total | 11,370 | 11,335 |
The petitioner has reported that the blocks of stock were received from his brother by "gift" and taking the basis to his brother as his basis he has claimed a loss of $130,693.50. (Loss of $130,658.50 plus loss of $35 from the sales*749 within 30 days.) The respondent has disallowed this loss.
The petitioner paid $25,400 for the securities received from his brother. On sale of these securities for $27,829 he realized gain of $2,429. On the repurchase of some similar stock within 30 days after the first sale and then resale, the petitioner lost $35.
*266 The partnership of Richard Ettinger bought on the open market some stock similar to the stock transferred to the petitioner on the belief that the stocks were good investments. These purchases were after the transfers of securities to the petitioner. However, the petitioner did not return to the partnerhsip any of the securities he received.
OPINION.
HARRON: The petitioner claims that the securities received from the Richard Ettinger partnership were gifts to him and he has reported a claimed loss under the provisions of section 113(a)(2) of the Revenue Act of 1928. If the petitioner received these securities as gifts he is entitled to the loss. The respondent contends that the petitioner received the securities by purchase and not as gifts.
Richard Ettinger has testified as follows:
I told Virgil that I wanted to do something for him*750 because I had done things for other members of the family and I said that I wanted to give him stock and that I had two objects in giving him that stock; one was to make him a gift that would benefit him and the other was to get a benefit by taking some stock losses that I could not have benefited from myself.
In 1931 the petitioner had one of his most profitable years in business. He received gross receipts of $254,785.46 from his business and a net income after business expenses of $155,088.79. The petitioner's brother, Richard, was familiar with the petitioner's income every year, according to the petitioner's testimony. When the petitioner received the stock he intended to sell it before the end of the taxable year to realize losses.
The petitioner received securities from the partership account agreeing to pay an amount determined by Richard Ettinger. The parties have referred to this amount as a "lien" on the stock. It is true that the partnership had a margin account with Lamborn, Hutchings & Co. but there is no evidence that these brokers had any lien in any apecific amount on the securities transferred to the petitioner. On cross-examination, Richard Ettinger testified*751 as follows, with reluctance, and at questioning of the presiding Member of the Board:
* * * the way I arrived at it (the amount to be paid by the petitioner) was to see what the market value of the stock was and to take some figure, materially less than the market value.
The facts show that the figure fixed by Richard Ettinger was not "materially" less but a few points under the market price on the date of transfer, i.e., on December 14, 1931, 100 shares of Union Pacific were transferred to the petitioner. The stock was selling around $75 per share on that day on the market. Richard fixed the amount to be paid by petitioner at $70 and petitioner paid $7,000 *267 for 100 shares of Union Pacific. On December 17 the petitioner sold this stock on the market at around seventy-two and received $7,278.50. All the transaction are similar.
On the facts we are of the opinion that the amount paid by the petitioner for each block of stock was not payment of the broker's lien on such stock, if there was one. Furthermore, we are not concerned with the margin account of Richard Ettinger's partnership for no facts are present as to the nature of his credit with his broker. He*752 had a large account with Lamborn, Hutchings & Co. and we know nothing with respect to whether they were pledges of any stock or had any particular liens in any particular amounts on stock owned by the Richard Ettinger partnership. In any event, there is not as a matter of law any proportional lien against each block of stock in a margin account (Meyer, The Law of Stock Brokers and Stock Exchanges, p. 314), and so long as a broker considers the margin sufficient he will, of course, allow a customer to order out any block of securities he desires. There is no evidence that Richard Ettinger's margin account was undermargined or that the demand for payments in specific amounts was demanded by the broker.
Having the fact before us that the so-called "lien" was fixed by Richard Ettinger by his own arbitrary method without any consultation with his brokers, we hold that the amounts paid by petitioner constituted a purchase price; that petitioner bought the stock; and that there was no gift to him of the stock. The brokers acted solely as agents in transferring both the securities and payments involved and the result is the same as if the partnership had transferred directly to the*753 petitioner the $28,487.50 worth of securities and the petitioner had paid the $25,400 directly to the partnership. We are unable to disregard the substantial payments by the petitioner for the stock. A gift is a transfer without consideration but here the petitioner paid almost the full market price for the securities. The Richard Ettinger partnership later purchased most of the same securities again on the market and it is apparent that the total amount paid by the petitioner would easily enable the partnership to reinvest in these good investments.
There have been decisions where this Board and the courts have looked through the labels of "gift" and "sale" and held that where the consideration was greatly less than value there was part gift, a gift being made of the excess of the value over the "bargain price" paid. See . Each case must be decided on its own facts and we believe there is no requirement here that it be held that any part of the value of the securities passed to the petitioner as a gift. It is held that the respondent *268 is sustained. It is held further that the basis to the petitioner is the cost to him of*754 the stock and he is taxable on the gain realized from the sale of the securities in the taxable year. Since we hold that the petitioner purchased the stock there is no need for considering his effort to convert what he chose to believe a "capital loss" into an "ordinary loss." With respect to a few sales and repurchases of stock shown in the findings of fact the petitioner realized a loss of $35. He is entitled to this and his net gain appears to be $2,394.
In determining the market value of the several blocks of stock on the respective dates of transfer to the petitioner we have used the closing quotations on the New York Stock Exchange, following ; affd., , and .
Decision will be entered under Rule 50.
Footnotes
1. Based on closing New York Stock Exchange quotation on dates of transfer. ↩