*2266 1. From the evidence, held that the respondent was in error in refusing to allow as deductions the contributions made to certain religious, educational and charitable organizations.
2. From the evidence, held that the transactions entered into between the petitioner and the State National Bank of St. Louis, Mo., were sales resulting in taxable profit except in the case of municipal securities. Willcuts v. Bunn, 35 Fed.(2d) 29, followed.
*1060 This proceeding is for the redetermination of deficiencies in income tax for the calendar years 1922 to 1925, inclusive, for which years the respondent has proposed the following deficiencies:
| 1922 | $372.49 |
| 1923 | 7,965.77 |
| 1924 | 168.05 |
| 1925 | 213.87 |
The petitioner alleges that the respondent erred (1) in refusing to allow as deductions certain amounts given to religious, educational and charitable institutions, and (2) in computing a profit on the transfer of securities in May 1923.
The respondent, in his answer, admits that he erred in his determination*2267 of the deficiency for the calendar year 1924, and alleges that the amount of the deficiency for such year should be increased from $168.05 to $4,862.94, for the reason that during the calendar year 1924 the petitioner sold $131,000 par value of certain securities for the price of $131,000, which securities had on aggregate cost of $105,987.50, thereby making a total taxable profit of $25,012.50 on the said transactions.
FINDINGS OF FACT.
The petitioner is an inhabitant of the State of Missouri. During the calendar year 1922 and until August, 1923, she resided in St. Louis, Mo., where her husband was a clergyman connected with St. Johns Episcopal Church. Subsequently she has resided in Paris, France, and Florence, Italy.
During the calendar year 1922 the petitioner contributed $1,200 in monthly payments of $100 each to the support of the St. Johns Episcopal Church in St. Louis, and she also paid the sum of $500 to a special fund for the purchase of a carpet for said church.
During the eight months in 1923 that she lived in St. Louis she continued paying the monthly subscription of $100, and in addition contributed $1,800 to the church, of which $600 was given for the express*2268 purpose of redecorating the rectory where she resided. She also gave $300 to Brittain Hall, an orphan home for boys, conducted by St. Johns Episcopal Church, and $200 to St. Lukes Chapel in Paris, France, which was affiliated with the Cathedral and in which her husband was the pastor in charge; $100 to the American Relief Association, an organization which aided stranded Americans in Paris.
In the calendar year 1924 she made donations of $3,200, which were divided between St. Johns Episcopal Church in St. Louis, Mo., and St. Lukes Chapel in Paris, France, and in 1925 her combined contributions to these two churches amounted to $3,000. During the *1061 period that petitioner's husband was pastor of St. Lukes Chapel he was paid directly by the Cathedral and was not recipient in any part of her contributions to the chapel.
The parties hereto have submitted a stipulation in regard to the transfer of certain securities, owned by the petitioner, in May and June of 1923 and 1924, which transactions the respondent contends resulted in taxable gain in each of the years.
On May 14, 1923, the petitioner sent the following letter to the State National Bank of St. Louis, Mo., *2269 hereinafter referred to as the bank:
St. Louis, Missouri,
May 14, 1923.
State National Bank,
St. Louis, Missouri.
Gentlemen:
You are holding for my account in your safe keeping department certain bonds and other securities.
I hereby authorize you to sell these bonds and securities on or between this date and May 30th and place proceeds of the same to my account, and I also hereby authorize you to purchase for my account United States Treasury Certificates of such issue as you may be able to buy, charging the amount to my checking account.
Further, sometime during the month of June I would like for you to purchase back the first mentioned bonds and securities for my account and pay for the same with the proceeds of the sale of the United States Treasury Certificates purchased for me as authorized above.
Yours truly,
(Signed) Dorothy Baker Stimpson.
P.S. - You are authorized to charge my account one-eighth of one per cent, covering the above transactions, as your commission.
(Signed) Dorothy Baker Stimpson.
Sometime prior to May 31, 1924, she sent a similar letter to the bank. At the time the above-mentioned letters were received by the bank it had*2270 in its possession, for safe-keeping for the petitioner, the securities hereinafter listed in Exhibits "A" and "B," which exhibits show par value, acquisition value, market value at time of transfer, value determined by the bank, and the respondent's determination of profit in connection with each of the several securities.
*1062 (Table omitted)
*1063 (Table omitted)
| COMMISSIONER CLAIMS RECONCILIATION OF AMOUNT SHOWN IN "BANK VALUE" COLUMN OF | ||
| EXHIBIT "A" FOR YEAR 1923 WITH AMOUNT SHOWN IN BANK'S VALUE 1923 - | ||
| "COMMISSIONER'S COST CLAIMS" COLUMN ON THIS EXHIBIT FOR 1924 | ||
| Total "repurchase column" above | $113,187.50 | |
| "sold for" column shown by Ex. "A" | ||
| applicable to year 1923 | 104,000.00 | |
| Difference | 9,187.50 | |
| The above difference of $9,187.50 is | ||
| made up as follows: | ||
| Item (d) above | $5,250.00 (not involved in 1923 sale) | |
| Item (e) above | 302.50 (not involved in 1923 sale) | |
| Item (f) above | 5,700.00 (not involved in 1923 sale) | |
| Item (b) above | 10.00 | |
| Item (c) above | 25.00 | |
| 11,287.50 | ||
| Deduct item "A" account of unallowable | ||
| loss thereon in 1923 - Ex "A" | 2,100.00 | |
| DIFFERENCE AS SHOWN ABOVE | 9,187.50 |
*2271 The letters were written to the bank because petitioner desired to have subject to her use, at June 1, 1923, and 1924, United States Treasury Certificates in lieu of the securities then owned by her and listed in Exhibits "A" and "B."
*1064 The bank, upon receipt of the letters and before May 31 in each year, having possession of all the securities owned by the petitioner, as shown in the respective exhibits, in the absence of the petitioner and without any definite understanding with her as to how it should handle the transaction, did so in the following manner. In 1923 it valued the securities at $104,000 and in 1924, at $138,000. The transactions, except as to dates and amounts, were handled in identically the same manner. In 1923 the bank placed a valuation of $104,000 on the securities. This valuation constituted nearly the market value on some of the securities as shown by sales of stock exchanges at about that time; and in some instances where the securities had no such market value the bank placed its estimate (based on income and on the maker's supposed solvency), of said value as the approximate value, or used par value as the income of the securities. The*2272 bank, having adopted $104,000 as the value, caused this amount to be entered as a credit on its books in favor of the petitioner, and caused said securities to be entered at the prices determined upon, as assets on the books of the bank. The bank took out of its assets United States Treasury Certificates which it then valued at $104,000. At the commencement of the transaction all the securities of the petitioner were in the care and custody of E. W. Kleinschmidt, an officer of the bank, who continued to retain the actual possession, care and custody of the same. When the $104,000 United States Treasury Certificates were taken out of the assets of the bank they were placed in the hands of Kleinschmidt, as an officer of the bank, for the petitioner, who continued to hold both the securities listed in Exhibit "A" as well as the United States Treasury Certificates. The records of the bank show that on June 4, 1923, it again received into its assets the $104,000 United States Treasury Certificates and on this date the petitioner's account was credited with $104,000, and also debited with a like amount, and that the $104,000 of securities listed in Exhibit "A" were taken out of its assets*2273 and continued to be held in Kleinschmidt's possession. The petitioner did not have physical possession of the securities for several months prior to May 14, 1923, nor for several months after, and at no time did she have physical possession of the United States Treasury Certificates. The $104,000 when placed to the petitioner's credit, was not subject to check, the entries of deposit and withdrawal on petitioner's account were all entered as one transaction. No actual cash was delivered to the petitioner for the securities and no actual cash was exchanged in any of the transactions. The petitioner paid the bank for handling the transaction, one-eighth of 1 per cent.
The transactions between the petitioner and the bank in 1924 were identical with those of the previous year, except that they relate to *1065 securities listed in Exhibit "B" and represent a valuation of $138,000 as determined by the bank. These securities were transferred to the bank on May 31, 1924, and United States Treasury Certificates purchased for her account. The United States Treasury Certificates were returned to the assets of the bank on June 2, 1924.
On June 2, 1924, the bank wrote the following*2274 letter to the petitioner:
STATE NATIONAL BANK, ST. LOUIS, MO.
June 2nd, 1924.
Mrs. Dorothy Baker Stimpson,
,58 Rue de Vaugirard, Paris, France.
DEAR MRS. STIMPSON:
We enclose statement of your account to the close of business May 31st, 1924, together with cancelled checks and memorandums showing the various credits. The withdrawal of $5,100 on the 31st ult. was made by us and the amount invested in U.S. Treasury Certificates. We have sold the Certificates again and your account has been credited $5,100 to cover.
We charge your account $1,000 and send you, herewith, our two drafts on the American Exchange National Bank of New York for $500 each payable to your order.
We also handled, in the same manner, as last year, your securities left with us for safekeeping. We disposed of the securities, with the exception of the Liberty Bonds, at the par value of $138,000, investing that amount in the U.S. Securities. We have repurchased the U.S. Securities and have used the amount to buy back your securities so that same stand just as they were before. In your letter of May 14, 1923, you authorized us to charge your account 1/8% of 1% as our commission covering*2275 this transaction. We have, therefore, charged your account $172.50.
Yours very truly,
E. W. KLEINSCHMIDT,Assistant Cashier.
The petitioner was not personally present at any transaction which the bank had in relation to the sales authorized in the abovementioned letters and knew nothing of the methods adopted by the bank in handling the transactions, except as inferred by the monthly statements received by her from the bank.
The stipulation states that Exhibit "A" and Exhibit "B" disclose the names of the various securities owned by the petitioner; the amount at par of the various securities; the actual market value at the time of transfer of the listed securities, securities not listed - valued by bank at par or on a basis of yield value; the value placed on the securities of the bank and the transfer dates; the original cost of the securities as determined by the respondent, and the amount of the profits which the respondent claims petitioner made on the transactions.
The respondent, in his proposed determination, disallowed contributions of $3,200, $3,200, $3,200, and $3,000 for the years 1922, 1923, 1924, and 1925, respectively. At the hearing the petitioner*2276 *1066 abandoned her claim as to $1,500 and the respondent conceded $1,200 in the year 1922, leaving only $500 in controversy. The respondent also consceded $800 for the year 1923, leaving $2,400 in controversy as to this year. In his sixty-day letter the respondent treated a transfer of securities in the year 1923 as one resulting in a profit and in his answer pleaded that a similar transaction in 1924 also resulted in profit.
OPINION.
MCMAHON: This proceeding raises two issues, which will be considered in the order in which they have been previously stated.
The petitioner during the years under consideration made certain religious and charitable contributions which the respondent has refused to allow as deductions from income. For the year 1922 only $500 now remains in controversy. This amount represents the petitioner's contribution towards the purchase of a carpet for St. Johns Episcopal Church in St. Louis, Mo. In the year 1923 she contributed $1,200 to the general funds of St. Johns Episcopal Church and also $600 to the redecorating of the rectory of this church, which she occupied as wife of the rector until August; $300 to Brittain Hall, a boys' orphanage*2277 connected with the church; $200 to St. Lukes Chapel in Paris, with which her husband was associated, and, $100 to the American Relief Society, an organization which aided stranded Americans in Paris. In 1924 and 1925 her combined contributions to St. Johns Episcopal Church in St. Louis and St. Lukes Chapel in Paris amounted to $3,200 and $3,000, respectively.
Section 214(a) of the Revenue Act of 1921 provides, in part:
SEC. 214. (a) That in computing net income there shall be allowed as deductions:
* * *
(11) Contributions or gifts made within the taxable year to or for the use of: (A) The United States, any State, Territory, or any political subdivision thereof, or the District of Columbia, for exclusively public purposes; (B) any corporation, or community chest funds, or foundation, organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, including posts of the American Legion or the women's auxiliary units thereof, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual; or (C) the special fund for vocational rehabilitation*2278 authorized by section 7 of the Vocational Rehabilitation Act; to an amount which in all the above cases combined does not exceed 15 per centum of the taxpayer's net income as computed without the benefit of this paragraph. * * *
Section 214(a)(10) of the Revenue Act of 1924 contains similar provisions.
The petitioner's evidence convinces us that the above payments were made, and we are further of the opinion that such contributions are deductible under the above cited statutes. The above stated *1067 amounts will be allowed as deductions subject to the 15 per cent limitation contained in the statutes.
During the months of May in 1923 and 1924, the petitioner, by letter, advised the State National Bank of St. Louis, Mo., to sell certain of her securities which were held by the bank, and acquired for her use United States Treasury Certificates, and in the month of June to dispose of the United States Treasury Certificates and reacquire the former securities. This issue was submitted on a stipulation of facts. The stipulation is silent as to the petitioner's reason for buying and selling the United States Treasury Certificates at these particular times, except that*2279 she then desired to have them subject to her use. The respondent, at the hearing, asked that the Board take judicial notice of section 12756 of the Revised Statutes of Missouri (1919, Vol. III, p. 3976), which reads as follows:
PROPERTY HELD JUNE 1st LIABLE FOR TAXES - Every person owning or holding property on the first day of June, including all such property purchased on that day, shall be liable for taxes thereon for the ensuing year. (R.S. 1909, par. 11338.)
Irrespective of the motive which prompted the request that the bank sell the securities then owned by the petitioner and procure for her United States Treasury Certificates, we are of the opinion that in May of 1923 and 1924, the petitioner completely divested herself of ownership in the securities then held by the bank for her and immediately thereafter became the owner of the United States Treasury Certificates which, in turn, were held for her use by the bank. We are not in accord with the petitioner's theory that the transaction was an "accommodation" matter, since the securities were put into the assets of the bank and the United States Treasury Certificates delivered to an officer of the bank for the use of te*2280 petitioner. The petitioner unqualifiedly authorized the bank to sell her securities and purchase United States Treasury Certificates. This the bank did and it does not matter that the bank did not sell and buy in the open market. Petitioner parted with the ownership of her securities prior to June 1 of each of the years 1923 and 1924, and with the proceeds from the sales thereof acquired the ownership of United States Treasury Certificates. The bank notified the petitioner that the transactions had been consummated and it does not appear that she repudiated or questioned any of the acts or conduct of the bank. Accordingly, the transactions should be treated as sales and the profits computed on the values stipulated.
Judgment will be entered under Rule 50.