*3402 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. Rosetta v. Hauss,12 B.T.A. 755">12 B.T.A. 755, followed.
4. Jeopardy assessment held not barred by the limitation provisions of the statute.
5. Error alleged to be mathematical held not proven.
6. The Board may not determine the year in which the Commissioner should credit overpayment of tax for a year not before it. Dickerman & Englis, Inc.,5 B.T.A. 633">5 B.T.A. 633.
*1112 BEFORE STERNHAGEN, MARQUETTE, AND VAN FOSSAN.
This is one of nine proceedings, of which that of James Couzens, Docket No. 10438, was decided May 5, 1928, . As to this petitioner, the respondent made a jeopardy assessment under section 274(d) as he did in the Couzens case. The petitioner duly filed a claim in abatement and gave the required bond. This claim was rejected in the amount of $1,438,826.35 and the case is here on the assessment and rejected claim.
This proceeding presents the following issues:
(1) Whether the jeopardy assessment is void because barred by the statute of limitations.
(2) The authority of the respondent to make a determination of the value on March 1, 1913, of the petitioner's stock in the Ford Motor Co. and whether that value is open for redetermination here.
(3) The fair market price or value of such stock.
(4) Whether the dividend received by petitioner in 1919 from the Ford Motor Co. pursuant to court decree*3404 is within petitioner's taxable income for 1919.
(5) Whether there is a mathematical error in the computation of petitioner's net income; and
(6) Whether respondent erred in failing to allow a certain credit against petitioner's income-tax liability.
The second and third issues herein are identical with the issues presented in the Couzens case. The fourth issue herein is the same as the additional issue presented in Rosetta v. Hauss, Docket No. 10826, decided June 22, 1928, .
FINDINGS OF FACT.
1. The petitioner is an individual residing in the State of Michigan, his address being 1928 Buhl Building, Detroit, Mich. He was formerly engaged in the practice of law.
*1113 2. On March 1, 1913, and for many years immediately prior thereto, and continuously to on or about July 7, 1919, the petitioner was the owner of from 325 to 1,000 shares of stock of the Ford Motor Co., a Michigan corporation, out of a total of 20,000 shares of such stock outstanding.
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*3405 to purchase the remaining 41 1/2 per cent of the stock owned by the minority stockholders, including that owned by the 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 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 the spring of 1919, until about the middle of April, the petitioner was at Pasadena, Calif. While there he saw and made clippings of the newspaper articles hereinafter referred to (P311) relative to the organization of a new company by Henry Ford.
*3406 30. Early in April the petitioner received a letter from Henry S. Morgan, secretary to James Couzens, 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 the petitioner 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. His reason for the last statement was the existing high rate of taxation on large profits.
31. On petitioner's return to Detroit in the month of May, Morgan informed him that after he had talked with Webb, as stated in his letter, Webb had disappeared and had not been seen since.
*1114 32. Later the petitioner met Luman W. Goodenough on the street, who informed him that he had heard Webb was back in town and that he had*3407 secured a valuation from the Government, fixing the value of the Ford Motor Co. stock. Upon inquiry from Goodenough as to whether he would sell his stock, petitioner replied that he had not made up his mind one way or the other.
33. Still later Morgan showed petitioner a form of power of attorney, to be signed by the the Ford minority stockholders, authorizing Morgan and Goodenough to enter into negotiations with Webb for the sale of the stock on the basis of $12,500 a share. Subsequently Morgan showed the document to the petitioner again, at which time it bore the signature of Horace H. Rackham. Petitioner informed Morgan that he would not think of signing it unless the signatures of all the minority stockholders were on it.
34. On several occasions after that the petitioner inquired of Morgan as to what Couzens had done, and was informed that he had done nothing.
35. On or about June 18, Webb approached the petitioner concerning the sale of his stock in the Ford Motor Co. The petitioner was about to leave the city for several weeks and he refused to consider the matter.
36. On July 1, after his return, the petitioner called Morgan and asked him what Couzens had*3408 decided to do in his absence. Morgan replied that he had seen Couzens who had told him to tell petitioner to go ahead on his own hook, not to bother at all about Couzens, who would attend to his side of the transaction himself. The petitioner replied that if that were Couzens' attitude he was no longer interested, that he came into the company with Couzens and would go out with him or not at all.
37. The following day Webb again came to see the petitioner, who reported to him the substance of his conversation with Morgan of the previous day. He told Webb that that was his position in the matter and that that was all there was to it so far as he was concerned. Webb replied that if that was his attitude, the only thing to do was "to whip the Mayor [Couzens] into line." He then left petitioner's office.
38. At that time it was the petitioner's understanding that Webb was representing the Old Colony Trust Co. of Boston, and he did not know who was back of the Old Colony Trust Co.
39. On the following day, July 3, after calling the petitioner on the telephone, Webb came to petitioner's office and showed him a document purporting to be an option running to Edsel Ford, offering*3409 him the privilege of buying Couzens' stock in the Ford Motor Co. at $13,000 a share. This was the first information the petitioner had as to who the actual purchaser of the stock was. He told Webb he *1115 would take the papers which Webb gave to him and go over them, and that he would give Webb an answer on July 7.
40. On or before July 7, Webb showed the petitioner a copy of the letter from Commissioner Roper to Ballantine.
41. The petitioner drafted the contract set forth below. He did not think that the price of $12,500 a share represented the full value of each share of stock. He thought that many of the advantages and opportunities which had been afforded him were directly traceable to his association with Ford in the Ford Motor Co. Also, although he thought he saw an opportunity to make a large sum of money, he did not care to be presented to Ford in the attitude of holding him up, in contrast with the attitude of the other stockholders who, with the exception of Mrs. Anderson, had agreed to dispose of their stock. Furthermore, he considered that of any additional amount he would receive, the Government would take the larger share in taxes. Still further, *3410 he did not wish to put himself in such a position that he might block the deal as to other stockholders to whom he had been bound by ties of affection, intimacy and business relationship. These considerations he regarded as paramount to that of value.
42. Under date of July 7, 1919, the petitioner and Webb signed the following contract:
MEMORANDUM OF AGREEMENT, made and entered into this Seventh day of July, A.D. 1919, by and between Stuart W. Webb of Boston, Mass., hereinafter styled "first party", and John W. Anderson of Detroit, Michigan, hereinafter styled "second party", WITNESSETH, as follows:
OFFER.
Said first party agrees to buy all, but not less than all, of the shares of the capital stock of Ford Motor Company, amounting to Three hundred twenty-five (325) shares owned by said second party, subject to the terms and conditions hereinafter enumerated.
ACCEPTANCE.
Said second party agrees to sell to said first party all of the shares of the capital stock of Ford Motor Company owned by said second party (which said second party hereby warrants and represents to said first party amounts to Three hundred twenty-five (325) shares, subject to the terms and conditions*3411 hereinafter enumerated.
PRICE.
The price of said stock to be paid therefor by said first party to said second party is the sum of Twelve Thousand Five Hundred ($12,500.00) Dollars per share.
PLACE OF PAYMENT.
At the offices of Detroit Trust Company, Southwest corner of Fort and Shelby Streets in the City of Detroit, Michigan.
*1116 TO WHOM PAYMENT IS TO BE MADE.
TO DETROIT TRUST COMPANY, aforesaid, acting through its duly authorized officers.
MEDIUM OF PAYMENT.
United States Currency, deposited either with said Trust Company, or with such other depositary or depositaries as said second party may designate to said first party, in writing, over his signature, and subject to the free and unrestricted withdrawal therefrom by said second party in the course of the fulfillment of the within terms of sale, without cost charge or expense to said second party by way of exchange, discount or otherwise.
TERMS OF PAYMENT.
On the delivery to said Detroit Trust Company of certificate or certificates duly endorsed in blank by said second party, representing the aforesaid Three Hundred Twenty-five (325) shares of stock in Ford Motor Company of Highland Park, Michigan, *3412 owned by said second party, said first party shall forty with pay to said Detroit Trust Company a sum of money equal to $125.00 a share, or an aggregate sum of $40,625.00 as an initial payment on account of said purchase price above mentioned.
On or before July 17th, 1919, said second party shall likewise pay to said Detroit Trust Company the further sum, equal to Three Thousand ($3,000.00) Dollars per share, or an aggregate sum of money of Nine Hundred seventy-five Thousand ($975,000.00) Dollars.
On or before August 16th, 1919, said second party shall likewise pay to said Detroit Trust Company the further sum, equal to Nine Thousand Three Hundred Seventy-five ($9,375.00) Dollars per share, or an aggregate sum of money of Three Million Forty-six Thousand Eight Hundred Seventy-five ($3,046,875.00) Dollars, thus making a sum total payment to said Detroit Trust Company by said first party for said stock of Four Million Sixty-two Thousand Five Hundred ($4,062,500.00) Dollars.
STIPULATIONS TO BE PERFORMED BY SECOND PARTY
1st: To deposit said certificates representing Three Hundred Twenty-five (325) shares of stock of Ford Motor Company of Highland Park, Michigan, owned by*3413 said second party, duly endorsed in blank, with Detroit Trust Company on or before July 7, 1919, free and clear of any and all liens, pledges and encumbrances whatsoever.
2d: To execute and deliver to Detroit Trust Company concurrently with the delivery of said certificates of stock aforesaid, a written direction addressed to said Detroit Trust Company in the form and language of a certain paper writing hereto attached, marked EXHIBIT "A" and made a part hereof.
Failure on the part of said second party to do and perform the aforesaid acts, or either of them, numbered 1st and 2d, shall render this agreement null and void and all duties, obligations and liabilities of the said first party hereunder shall thereupon forthwith cease and be held for naught.
STIPULATIONS TO BE PERFORMED BY FIRST PARTY
To pay at the place, to the party, and in the medium hereinbefore provided, on account of the purchase price of said stock, the following amounts on or before the following dates set opposite said amounts to be so paid, respectively:
| On or before July 7, 1919, the sum of | $40,625.00 |
| On or before July 17, 1919, the further sum of | 975,000.00 |
| On or before August 16, 1919, the further and final sum of | 3,046,875.00 |
| Total | 4,062,500.00 |
*3414 *1117 STIPULATIONS TO BE PERFORMED BY BOTH PARTIES
1st: To execute and deliver to Detroit Trust Company a "Depositary Agreement" in the language set forth in the paper writing hereto attached and marked EXHIBIT "B", and made a part hereof, said Detroit Trust Company, through its duly authorized officers, to likewise execute said "Depositary Agreement", and, when so executed, to deliver one copy to said first party, one copy to said second party and retain one copy in its possession, said copies in triplicate to be all executed and delivered before the said second party shall be under any duty or obligation to deliver said stock, endorsed in blank, to said Detroit Trust Company, anything hereinbefore said to the contrary notwithstanding. Failure to execute and deliver said "Depositary Agreement" in manner aforesaid shall render this agreement null and void and all duties, liabilities and obligations of the respective parties hereto shall thereupon forthwith cease and this agreement shall stand as though the same had never been executed by the parties hereto.
MUTUAL TERMS, CONDITIONS AND AGREEMENTS.
It is mutually understood, by and between the parties hereto, and*3415 likewise mutually so agreed, as follows:
1st: That time is of the essence of this agreement.
2d: This agreement is expressly subject to the rights of all the other stockholders of Ford Motor Company of Highland Park, Michigan, to purchase the stock covered by this agreement, under and in pursuance of the terms governing the sales of said stock, as provided in the by-laws of said Ford Motor Company, and as printed on the certificates, representing the stock covered by this agreement.
3d: That this agreement solely refers to the shares owned by said second party in the Ford Motor Company, located as far as its principal office is concerned, at Highland Park, Michigan, and a corporation organized and existing under the laws of the State of Michigan, and any holdings of stock, either in the name of said second party, or held by third person or persons for his use and benefit, in either the Ford Motor Company of Canada, Limited, or the Ford Motor Company of England are neither affected or covered hereby and the interest of said second party in the stock of said above named corporations, shall be and remain the same as though this agreement had never been executed.
*3416 4th: That Twelve Thousand Five Hundred ($12,500.00) Dollars per share is the highest price which said first party has or shall, agree to pay for any of the stock of said Ford Motor Company which he has already, or may hereafter purchase, or agree to purchase, at any time prior to August 16, 1919, and that if said first party has already, or shall at any time prior to said August 16, 1919, inclusive, pay, or agree to pay, a higher price for any of the capital stock of said Ford Motor Company, that then, in that event, said first party shall pay to said second party, forthwith upon demand, such additional sum under the terms hereof, as shall equal the difference between Twelve Thousand Five Hundred ($12,500.00) Dollars per share and the highest price so paid, or agreed to be paid, by said first party for said stock.
*1118 5th: That, with reference to certain other agreements which the said first party has already entered into with certain other of the stockholders of said Ford Motor Company, substantially of similar character to this instrument, relating to the purchase by said first party of the stock of said other stockholders in said Ford Motor Company, said first*3417 party expressly agrees that if and when the said first party makes the respective payments of the second and third (final) instalments under any of said other agreements, he will contemporaneously therewith make the respective second or third (final) instalment payments provided for by this instrument, and failure so to do shall thereupon forthwith make this agreement null and void as to its then unfulfilled part.
6th: That it is expressly understood that the said first party represents in this transaction and agreement an undisclosed principal, and that the rights of either party hereto and hereunder are assignable, and that said undisclosed principal, when disclosed, or the assignee or assignees of said first party, or of any subsequent assignee or assignees shall be as equally and firmly bound by each and all the duties, obligations and damages for failure to perform under this agreement as the said first party is himself bound herein.
7th: This agreement is hereby declared binding upon the parties hereto, their heirs, executors, administrators or assigns, respectively.
PROVISIONS IN EVENT OF DEFAULT.
1st: In event that said first party fails to make the*3418 instalment payment on account of said purchase price of stock, on or before July 17, 1919, and shall continue so in default for a period of Five (5) days thereafter, (or until July 22, 1919, inclusive), then and thereupon, upon the happening of such event, it is hereby agreed that the said Detroit Trust Company shall forthwith return and deliver said certificates of stock, theretofore deposited with it by said second party, in accordance with the terms hereof, to said second party, and at the same time pay him Forty Thousand Six Hundred Twenty-five ($40,625.00) Dollars, same being the amount of the initial payment made to said Detroit Trust Company, under the terms of this agreement, the same to be paid by said first party and accepted by said second party as stipulated damages for the nonfulfillment of this agreement or contract by said first party, and thereupon said first party shall be no longer liable to said second party under the terms hereof in any manner whatsoever.
2d: In event that said first party shall make said first payment, and also said second payment due on July 17, 1919, but shall fail to make said final payment, and shall continue so in default for a period*3419 of five (5) days thereafter (or until August 21, 1919, inclusive) then and thereupon, upon the happening of such event, said Detroit Trust Company shall forthwith return and deliver said certificates of stock theretofore deposited with it by said second party, in accordance with the terms hereof to said second party and any and all sums theretofore paid by said first party to said Detroit Trust Company, and, in turn, as hereinafter provided, paid by said Detroit Trust Company to said second party, shall be retained by said second party as liquidated and stipulated damages and said first party shall have no claim of any kind whatever against said second party, or against said monies so paid, or against said stock and all rights and liabilities of the said first party hereunder shall be thereupon terminated; the loss of said first and second payments, as herein provided, shall represent the sole liability of said first party for his failure in respect to payment of the said final instalment of the purchase price, as provided for herein.
*1119 PAYMENTS BY TRUST COMPANY
As soon as the payment due on July 17, 1919, as provided herein, is paid by the said first party to said*3420 Detroit Trust Company, the said Detroit Trust Company shall thereupon forthwith pay the entire amount of the initial payment, as well as the entire amount of said second payment, payable July 17, 1919, to said second party, and said Detroit Trust Company shall likewise pay the final instalment of the purchase price as herein provided for, forthwith to said second party upon its receipt by said Detroit Trust Company from said first party.
REPRESENTATION AND WARRANTY
It is mutually understood that there is on deposit at the date hereof with said Detroit Trust Company a certain letter purported to be executed and signed by Daniel C. Roper, Commissioner of Internal Revenue, Washington, D.C., fixing the fair valuation of the stock, per share, of Ford Motor Company, at the sum of Nine Thousand Four Hundred Eighty-nine and 34/100 ($9,489.34) Dollars, as of March 1st, 1913, and with reference thereto (a true and correct copy of said letter being hereunto attached and marked EXHIBIT "C" and made a part hereof, said first party hereby represents and warrants to said second party that the signature to said letter is the actual and genuine signature of the said Daniel C. Roper, and of no*3421 other person, and that said letter was caused to be procured, among other things, as an inducement to said second party to cause him to enter into this agreement for the sale of his stock in said Ford Motor Company and agrees to save said second party free and harmless from any loss, cost, damage or expense to which he may, at any time hereafter, be put, should said letter prove to be not genuine or authentic and not the official expression of the said Daniel C. Roper, or his personal signature; it being understood expressly that it is upon the representations and warranty that said letter is exactly what it purports to be and is the official expression of the said Daniel C. Roper as Commissioner of Internal Revenue, and the signature signed thereto is the genuine signature of the said Daniel C. Roper that has induced said second party to enter into this agreement, and that but for said representations and warranty by said first party, this agreement would never have been executed by said second party.
DELIVERY OF STOCK
Upon the full payment to the said Detroit Trust Company of a sum of money equivalent to Twelve Thousand Five Hundred ($12,500.00) Dollars per share for said Ford*3422 Motor Company stock, same being an aggregate sum of Four Million Sixty-two Thousand Five Hundred ($4,062,500.00) Dollars by said first party, said Detroit Trust Company shall thereupon forthwith deliver said Three Hundred Twenty-five (325) shares of stock to said first party, it being expressly understood that said first party reserves the right to anticipate any, or all, payments hereunder and pay for said stock, the full purchase price therefor, as herein provided, at any time before August 16, 1919, if said first party elects so to do, in which latter event all monies so paid shall forthwith be paid to said second party by said Detroit Trust Company.
Inasmuch as at the date hereof said second party has not been paid the dividend ordered by the Supreme Court of Michigan to be distributed to the stockholders of Ford Motor Company on or before July 10, 1919, in the suit of John F. Dodge et al vs Ford Motor Company, together with interest at Five (5%) percent on the amount of such dividend from December 5, 1917, it is *1120 expressly agreed and understood by the parties hereto and by said Detroit Trust Company, that notwithstanding the execution and delivery of this agreement, *3423 and notwithstanding the delivery of said stock by said second party to said Detroit Trust Company, and notwithstanding the payment of Forty Thousand Six Hundred Twenty-five ($40,625.00) Dollars by said first party, this agreement is executed and delivered, said stock is delivered and said money is paid this Seventh day of July, A.D., 1919, only tentatively, and as a matter of personal convenience to said first party. Until said second party notifies said Detroit Trust Company, in writing, over his signature, that he has been paid said dividend in full, together with interest thereon, as aforesaid, this agreement shall remain absolutely inoperative and as though the same had never been executed. Failure by said second party to receive and be paid said dividend, together with interest thereon, as aforesaid, at any time within Five (5) days from the date hereof shall thereby make this agreement permanently inoperative for all times, and thereupon, in the happening of such event, said Detroit Trust Company shall, on demand, return said certificates of stock to said second party, and shall, on demand, repay to said first party said sum of Forty Thousand Six Hundred Twenty-five ($40,625.00) *3424 Dollars.
IN WITNESS WHEREOF, said first and second parties hereto have hereunto fixed their respective hands and seals this 7th day of July, A.D., 1919.
STUART W. WEBB. [L.S.]
JOHN W. ANDERSON. [L.S.]
In the presence of
Witnesses.
43. On the same date the petitioner signed the following instrument (designated "Exhibit A" in the above contract):
DETROIT, MICHIGAN, July 7, 1919.
TO THE DETROIT TRUST COMPANY,
DEPOSITARY UNDER AGREEMENT, DATED JULY 7, 1919, EXECUTED BETWEEN STUART W. WEBB OF BOSTON, MASS., JOHN W. ANDERSON OF DETROIT, MICHIGAN, AND SAID DETROIT TRUST COMPANY, provided for the purchase of said Stuart W. Webb from the undersigned of Three hundred twenty five (325) shares of the capital stock of Ford Motor Company of Highland Park, Michigan:
The undersigned hereby deposits with the Depositary for sale under the terms of said agreement Three hundred twenty-five (325) shares of the capital stock of said Ford Motor Company, being all the stock of said Company owned by the undersigned, and directs the depositary to deal with the same in accordance with the terms of said agreement, to which the undersigned herewith becomes a party.
The undersigned*3425 waives any provision of the by-laws of said Ford Motor Company relating to notice by one stockholder to other stockholders of a proposed sale of stock, and his right to purchase stock proposed to be sold, and grants to said Stuart W. Webb power of attorney, irrevocable, with full power of substitution to give in the name and behalf of the undersigned to any other stockholder of said Ford Motor Company such notice of the sale proposed in said agreement, as may be required or appropriate by reason of such by-laws of said Ford Motor Company.
JOHN W. ANDERSON,
Address: 623 Moffat Building, Detroit, Michigan.
*1121 44. Also on July 7, the following agreement (designated "Exhibit B" in the above contract) was made between the parties signatory thereto:
"DEPOSITARY AGREEMENT"
THIS AGREEMENT made and entered into this Seventh day of July, A.D., 1919, by and between STUART WEBB of Boston, Mass. (hereinafter styled "first party"), John W. Anderson of Detroit, Michigan, (hereinafter styled "second party"), and DETROIT TRUST COMPANY of Detroit, Michigan, (hereinafter styled "depositary", WITNESSETH, as follows: -
WHEREAS, said first and second parties have this 7th day*3426 of July, A.D., 1919, entered into a certain contract, or agreement for the sale by the said second party to said first party and for the purchase by said first party from said second party of Three hundred twenty-five (325) shares of the capital stock of Ford Motor Company, one of the triplicate copies of which said agreement is hereto attached and marked "Exhibit One" and made a part hereof, and desire said Detroit Trust Company to act as Depositary thereunder, and,
WHEREAS, said Detroit Trust Company is willing to so act, subject, however, to the limitations upon its liability in so acting, as hereinafter specifically set forth.
NOW THEREFORE, in consideration of the premises, said Depositary agrees, as follows: -
First: To receive the stock certificate or certificates entrusted to it by said second party, said certificates to represent a total of Three hundred twenty-five (325) shares of the capital stock of said Ford Motor Company, and to be endorsed by said second party before delivery to said Depositary and to safetly in blank and securely keep the same pending the fulfillment of the terms of said Agreement, Exhibit One.
Second: Upon the fulfillment by said*3427 first party of the terms of payment, as provided in said Agreement, to deliver said stock certificates to said first party, or to his written nominee, or assignee.
Third: Upon the failure of said first party to fulfill the terms of payment, either at the respective dates (or within five (5) days thereafter), or in the full amounts agreed to be paid by him, as provided in said agreement, to forthwith re-deliver said certificates to said second party.
Fourth: Said Depositary hereby acknowledges receipt from said first party of the sum of Forty thousand six hundred twenty-five ($40,625.00) Dollars, delivered to it, as the initial payment on account of the purchase price of said stock by said first party, which said sum of money said Depositary hereby agrees to forthwith pay to said second party upon the failure of said first party to make at the time and in the full amount specified (or within five(5) days after the date named upon which said second payment is to be made) the second payment on the purchase price of said stock specified in said agreement.
Fifth: Or, in event said first party shall make said second payment to said Depositary at the time and in the amount, *3428 as provided in said agreement (or within five (5) days thereafter) then, in that event, said Depositary hereby agrees to forthwith pay to said second party said sum of Forty thousand six hundred twenty-five ($40,625.00) Dollars, and in addition thereto the full amount of said second payment, which, it is hereby agreed and understood, is to be the sum of Nine hundred seventy-five thousand ($975,000.00) Dollars.
Sixth: Upon the payment to said Depositary of the final instalment, amounting to Three million forty-six thousand eight hundred seventy-five ($3,046,875.00) Dollars by said first party, at the time (or within five (5) days thereafter) *1122 named in said agreement, said Depositary hereby agrees to forthwith pay said Three million forty-six thousand eight hundred seventy-five ($3,046,875.00) Dollars to said second party.
Seventh: Inasmuch as at the date hereof said second party has not been paid the dividend ordered by the Supreme Court of Michigan to be distributed to the stockholders of Ford Motor Company on or before July 10, 1919, in the suit of John F. Dodge et al vs Ford Motor Company, together with interest at Five (5%) percent on the amount of such*3429 dividend from December 5, 1917, it is expressly agreed and understood by the parties hereto and by said Detroit Trust Company, and notwithstanding the payment of Forty thousand six hundred twenty-five ($40,625.00) Dollars by said first party, this agreement is executed and delivered, said stock is delivered, and said money is paid this Seventh day of July, A.D., 1919, only tentatively, and as a matter of personal convenience to said first party. Until said second party notifies said Detroit Trust Company, in writing, over his signature, that he has been paid said dividend in full, together with interest thereon, as aforesaid, this agreement shall remain absolutely inoperative and as though the same had never been executed. Failure by said second party to receive and be paid said dividend, together with interest thereon, as aforesaid, at any time within Five (5) days from the date hereof, shall thereby make this agreement permanently inoperative for all times, and thereupon, in the happening of such event, said Detroit Trust Company, shall, on demand, repay to said first party said sum of Forty thousand six hundred twenty-five ($40,625.00) Dollars.
Eighth: The said Depositary*3430 accepts the trust and duties reposed upon it by this instrument, but upon the express understanding, that it shall not be liable for any action taken in good faith and believed to be within the discretion or power conferred upon it, or be responsible for any but its own acts and not for those of any person employed and selected with reasonable care, nor for any loss unless the same shall happen through its own wilful default. The Depositary shall have the right in its discretion to employ counsel.
Ninth: Any and all expenses, costs and charges incurred by the Depositary in fulfilling the terms of its trust hereunder, including counsel fees, and the reasonable compensation of said Detroit Trust Company for acting as a Depositary hereunder shall be wholly paid by said second party and said first party shall in no wise be liable therefor, or any part thereof.
IN WITNESS WHEREOF, said first party and said second party have hereunto respectively set their hands and seals and the said Depositary has hereunto caused its corporate name to be subscribed and its corporate seal to be affixed by its duly authorized officers this 7th day of July, A.D. 1919.
STUART W. WEBB, [L.S. *3431 ]
JOHN W. ANDERSON, [L.S.]
DETROIT TRUST CO.
BY RALPH STONE,
President.
45. Before drawing the above contract the petitioner inquired of Webb concerning the authority of Commissioner Roper to make the determination set forth in the letter to Ballantine, and was informed by him that it had never been questioned. The petitioner had no thought but that the signature on the letter was Roper's and that the letter was the official expression of the Commissioner of Internal Revenue. Nevertheless, in drawing the contract he inserted the clause *1123 entitled "Representation and Warranty" in an endeavor to protect himself and make the purchaser liable in the event the signature proved not genuine or the letter proved not to be an official act of Commissioner of Internal Revenue Roper.
46. The petitioner transferred the 325 shares of stock in the Ford Motor Co. then owned by him to the purchaser for whom the Old Colony Trust Co. had acted, for the sum of $4,062,500, or at the rate of $12,500 a share, pursuant to the agreement of July 7, 1919.
47. On July 10, 1919, the petitioner received from the Ford Motor Co. a dividend of $313,225.03 and $24,972.19 interest*3432 thereon to July 10, 1919, pursuant to the court decree in the case of John F. and Horace Dodge v. Ford Motor Co., et al. He thereafter filed an amended return for 1917, reporting this dividend therein as 1917 income taxable at 1916 rates on the ground that such dividend constituted income set apart out of earnings accumulated in 1916. He reported the interest in his 1919 income-tax return as 1919 income.
48. Thereafter the petitioner filed in the office of the collector of internal revenue at Detroit, Mich., his individual income-tax return for the calendar year 1919. The return was made on the basis of income received. It is stamped with a legend indicating that it was received by the collector of internal revenue on March 13, 1920. In that return the petitioner included as income the sum of $978,464.50 as the profit derived from the sale of the Ford Motor Co. stock, this amount being the difference between the sale price of $4,062,500 and the March 1, 1913, value of the stock, $3,084,035.50, computed on the basis of $9,489.34 a share, in accordance with the letter of Commissioner Roper to Ballantine. This return reported his total charitable contributions for 1919*3433 to have been $69,660, and a deduction of that amount was taken.
49. The total purchase price which the petitioner paid for the 325 shares of stock was less than the March 1, 1913, fair market price or value thereof. He acquired the 325 shares as follows: On June 18, 1903, as one of the original incorporators of the Ford Motor Co. of Michigan he subscribed for 50 shares of stock for the price of $5,000, which was paid in cash. On or about October 22, 1908, he received a stock dividend of 1,900 per cent, or 950 shares. This made a total of 1,000 shares of stock then owned by him. On January 29, 1917, he made a gift to his wife, Gustava D. Anderson, of 500 shares of this stock. On June 28, 1919, the petitioner and his wife jointly created their irrevocable trust with the Illinois Trust & Savings Bank of Chicago, Ill., as trustee, under an indenture of that date, and each of them transferred and delivered to the trustee 175 shares of this stock. This left the petitioner as the then owner of 325 shares of stock of the Ford Motor Co., which he sold as stated above. The exact cost of these 325 shares of stock was $1,625.
*1124 50. Commissioner Roper went out of office*3434 on March 21, 1920, and was immediately succeeded by Commissioner William M. Williams.
51. On June 8, 1920, Commissioner Williams assessed against the petitioner an income tax for 1919 of $489,430.59, being the amount of income-tax liability shown by his return, and this was paid by petitioner as follows:
| March 15, 1920 | $125,000.00 |
| April 26, 1920 | 136,000.00 |
| June 16, 1920 | 41,167.06 |
| Sept. 15, 1920 | 173,604.08 |
| Jan. 31, 1923, by credit of overpayment for 1916 | 13,564.54 |
| Jan. 31, 1923, by credit of overpayment for 1917 | 94.61 |
| Total | 489,430.59 |
52-56. 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.
57. 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 the gain on the sale of the stock was not set forth therein, and prepared the following letter which was sent to Couzens:
TREASURY DEPARTMENT
Washington
*3435 Office of
Commissioner of Internal Revenue
Address Reply to
Commissioner of Internal Revenue
And Refer to
IT:G:P-8
IIP
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.
*1125 58-59. These findings of fact are respectively identical with findings of fact P45 and P46 in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
60. On or before February 8, 1921, the petitioner's 1919 return was reviewed by auditors of the Income Tax Unit.
61. Under date of February 8, 1921, the following letter, based on that audit, was sent to the petitioner:
*3436 TREASURY DEPARTMENT
Washington
Office of
Commissioner of Internal Revenue
Address Reply to
Commissioner of Internal Revenue
And Refer to
IT:G:P-8
WHB-DU-801
FEBRUARY 8, 1921.
MR. JOHN WENDELL ANDERSON,1685 Jefferson Ave., Detroit, Mich.
SIR: It is disclosed that the dividend of $313,225.02, received by you through court decree on July 10, 1919 from the Ford Motor Company, was reported in your amended income tax return for 1917 and was taxed on such return at the 1916 rates, on the ground that such dividend constituted income set apart out of earnings accumulated in the year 1916.
Inasmuch as the Revenue Act of 1918 provides that dividends are income and are taxed at the rates for the year in which paid, regardless of when the earnings or profits out of which they were paid were accumulated, your net income for 1919 has been increased by the amount of this dividend.
Credit for the amount of additional tax assessed on your amended income tax return for 1917, on account of the inclusion of the dividend item has been allowed against the further tax disclosed through the adjustments made on your 1919 return.
The following computation indicates your*3437 surtax liability:
| Net income reported, subject to surtax at 1918-19 rates | $782,229.61 |
| Plus dividend adjustment | 313,225.02 |
| Total net income subject to surtax at 1918-19 rates | 1,095,454.63 |
| Surtax at 1918-19 rates | 645,555.51 |
| Surtax previously assessed at 1918-19 rates | 444,136.95 |
| Further tax due | 201,418.56 |
| Less: Tax previously assessed on 1917 return due to the | |
| inclusion of the dividend item in question | 29,580.57 |
| Further tax | 171,837.99 |
Assessment of this amount will be entered on the next list. The Collector of Internal Revenue for your district will notify you as to the time and manner of making payment of this tax.
Respectfully,
G. V. NEWTON,Deputy Commissioner.
*1126 62. On March 5, 1921, the petitioner sent a letter to the Commissioner of Internal Revenue protesting against the proposed assessment of $171,837.99. On March 28, 1921, Deputy Commissioner Batson, in reply thereto, stated that the matter had been considered in connection with the case of another stockholder and that the action in holding the dividend to be income for 1919 had been sustained by the Committee on Appeals and Review.
63. Commissioner Williams went*3438 out of office April 11, 1921, and Millard West became Acting Commissioner of Internal Revenue on that date.
64. On April 12, 1921, the Acting Commissioner assessed against the petitioner the additional tax for 1919.
65. The "assessment stamp" on the petitioner's return was filled in as follows:
Assessment
Tax$171,837.99
Penalty
BasisSup. Audit
Feb. 8, 1921. I.I.P.
DateMar 1921
Page0 Line1
"Sup. Audit" signified superficial audit, and February 8, 1921, was the date on which the audit was made. The date on the lower portion of the stamp and the page and line numbers are the means of identifying the assessment on a particular assessment list.
66. On April 26, 1921, the petitioner filed his claim for the abatement of this assessment. In due course he appealed to the Commissioner of Internal Revenue and the matter was referred by him to the Committee on Appeals and Review.
67. From April 27 to 30, inclusive, 1921, Internal Revenue Agents T. G. Thurston (devoting three days thereto) and J. L. Chatterton (devoting four days thereto) made a field investigation concerning the income-tax liability of the petitioner for the years 1916*3439 to 1920, inclusive. On May 5, 1921, they made their written report thereof to C. M. Justice, Internal Revenue Agent in Charge, Detroit, Mich., who duly transmitted it to the Commissioner. On May 18, 1921, Justice transmitted a copy of the report to the petitioner for his information.
68. In this report the agents refused to allow deductions for charitable contributions of stock at the actual value thereof at the *1127 time given, but allowed a deduction in the amount of the March 1, 1913, value thereof, thereby substantially decreasing the allowed deductions for charitable contributions made by the petitioner.
69. With reference to the profits derived by the petitioner from the sale of stock, the revenue agents reported that the sale price was $4,062,500, that the March 1, 1913, value was $3,084,035.50, determined in accordance with the letter of May 19, 1919, from Commissioner Roper to Ballantine, and that no adjustments were necessary.
70. Commencing on February 1, 1921, Internal Revenue Agents Thurston and Chatterton, continuing until February 17 and February 3, respectively, had made an investigation concerning the income-tax liability of James Couzens for*3440 1919. In that investigation Thurston was concerned, among other things, with the March 1, 1913, value of the Ford Motor Co. stock sold by Couzens.
71-75. These findings of fact are respectively identical with findings of fact P60, P54, P55, P56, and P61 in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
76. Thereafter the Committee on Appeals and Review recommended the denial of the appeal filed in connection with the petitioner's claim in abatement of the assessment of additional tax based on the Ford-Dodge dividend. On April 24, 1922, the petitioner was notified by letter of this action.
77. On June 20, 1922, upon demand by the collector of internal revenue at Detroit the petitioner paid in full the additional assessment of $171,837.99.
78-85. These findings of fact are respectively identical with findings of fact P67 to P74, inclusive, in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
86. On June 17, 1922, during consideration of the report of Internal Revenue Agents Thurston and Chatterton, the head of the Field Division*3441 of the Income-Tax Unit wrote to the internal revenue agent in charge at Detroit requesting further information, particularly with reference to gains and losses in 1919 and other years. This was referred to Internal Revenue Agent Thurston, who submitted a further report on December 8, 1922. With respect to the Ford Motor Co. stock the report stated that it originally cost $100 a share and that no adjustment was necessary.
87. After protest by the petitioner and others a hearing was had on January 5, 1923, before the Solicitor of Internal Revenue and his associates and oral arguments were presented on the question of allowable deductions to be made in the case of charitable gifts of property. Thereafter, on May 1, 1923, the Solicitor of Internal Revenue, by Solicitor's Opinion No. 1118, sustained the contentions of the petitioner and held that under the law the value of the gifts *1128 at the time given was the lawful basis for their deduction as charitable contributions. The Commissioner of Internal Revenue and the Secretary of the Treasury concurred in this ruling.
88. The revenue agent's reports of May 5, 1921, and December 8, 1922, were reviewed and on April 20, 1923, a*3442 letter was sent to the petitioner notifying him that an examination of his income-tax returns for 1918, 1919, and 1920 disclosed additional tax liability of $428.51 for 1918 and $16,047.26 for 1919, and an overassessment of $178.69 for 1920. Attached to this letter was the following statement:
IT:PA:FR
PFK-707
STATEMENT.
In Re: Mr. John W. Anderson,
8109 Jefferson Avenue, E.,
Detroit, Michigan.
| Year | Additional Tax | Overassessment |
| 1918 | $428.51 | |
| 1919 | 16,047.26 | |
| 1920 | ||
| $178.69 | ||
| Totals | 16,475.77 | 178.69 |
| Net Additional Tax | $16,297.08 |
The report of the examining officer dated May 18, 1921, has been reviewed and approved with the following exceptions:
1918
The examining officer omitted $4.60, revenue stamps in Block I-5, which has been included as a deduction. Contributions of $50.00 and $250.00 made to the Chi Psi fraternity and the Knights of Columbus, respectively, have been disallowed for the reason that these deductions are not allowable under Section 214(a)(11). These adjustments disclosed a further tax of $428.51, instead of $257.48 as recommended.
Your claim for the abatement of $171,837.99, additional tax assessed for 1919, *3443 has been rejected, for the reason that the examining officer's report disclosed an additional tax due in excess of the amount previously assessed.
The overassessment shown herein will be made the subject of a Certificate of Overassessment which will reach you in due course through the office of the Collector of Internal Revenue for your district. If the tax in question has not been paid, the amount will be abated by the Collector. If the tax has been paid, the amount of overpayment will first be credited against unpaid income tax for another year or years and the balance, if any, will be refunded to you by check of the Treasury Department. It will thus be seen that the overassessment does not indicate the amount which will be credited or refunded since a portion may be an assessment which has been entered but not paid.
89. On May 15, 1923, the petitioner by letter to the Commissioner of Internal Revenue protested the additional assessment as proposed by the letter of April 20.
90. On January 26, 1924, after a reexamination of the income-tax return of the petitioner for 1918 and 1919, in connection with that protest, the following letter was sent to the petitioner:
*3444 *1129 TREASURY DEPARTMENT
Washington
Office of
Commissioner of Internal Revenue
Address Reply to
Commissioner of Internal Revenue
And Refer to
IT:PA-2
FPH-206
JAN. 28 1924.
MR. JOHN W. ANDERSON,8109 Jefferson Avenue, East, Detroit, Michigan.
SIR: A reexamination of your income tax returns for the years 1918 and 1919 in connection with a letter of protest dated March 15, 1923, from Blair and Rothfus, your authorized representatives, and discloses additional tax aggregating $6,151.53 for the above years as shown in detail below instead of $16,475.77 as set forth in office letter to you dated April 20, 1923.
| statement | |
| 1918 additional tax | $428.51 |
| 1919 additional tax | 5,723.02 |
| Total | 6,151.53 |
For the year 1918 no change is made in the additional tax as previously stated. The statement in the previous letter in reference to the disallowance of $50.00 contribution to the Chi Psi Fraternity was misleading as this contribution was disallowed by the agent in the report and this amount was not again deducted by this office. However, an overstatement of $60.00 was made in adding the total contribution as shown in the report*3445 which was corrected by this office.
For the year 1919, there has been allowed additional contribution of $14,142.80 as claimed in the brief, to the Detroit Patriotic Fund, in addition to the amount allowed by the agent.
This adjustment discloses an additional tax for that year of $5,723.02 instead of $16,047.26.
The additional tax indicated will be assessed on the next list. Payment 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.
Respectfully,
J. G. BRIGHT,Deputy Commissioner.
BY A. LEWIS
Head of Division.
91. On April 12, 1924, the Commissioner of Internal Revenue assessed against petitioner the additional tax for 1919 of $5,723.02, which the petitioner paid on demand as follows:
| May 16, 1924, credit for overpayment for 1920 | $178.69 |
| May 22, 1924, cash | 5,544.33 |
| Total | 5,723.02 |
*1130 92. On May 5, 1924, the petitioner was advised that his claim for abatement of the assessment of $171,837.99, additional income tax for 1919, had been rejected.
93-116. These findings of fact are respectively identical with findings of fact P92*3446 to P115, inclusive, in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
117. On March 12, 1925, Acting Commissioner of Internal Revenue Nash, without prior notice to the petitioner, made an assessment against the petitioner of income and profits tax of $1,660,931.21 for 1919.
118. This assessment appeared on a special list for March, 1925, which contains the following certificate in the usual form:
I hereby certify that I have made inquiries, determinations, and assessments of taxes, penalties, etc., of the above classification specified in these lists, and find that the amounts of taxes, penalties, etc., stated as corrected and as specified in the supplementary pages of this list made by me are due from the individuals, firms, and corporations opposite whose names such amounts are placed, and that the amount chargeable to the collector is as above.
This certificate was signed "C. R. Nash, Acting Commissioner of Internal Revenue."
119. Commissioner Blair was not in Washington when this assessment was made.
120-124. These findings of fact are respectively identical with findings of fact P122, P124, *3447 P125, P126, and P127, in James Couzens, Docket No. 10438, and such findings are by reference incorporated herein and made part hereof.
125. Under date of March 12, 1925, Deputy Commissioner James G. Bright sent the following letter to the petitioner:
TREASURY DEPARTMENT
Washington
Office of
Commissioner of Internal Revenue
Address Reply to
Commissioner of Internal Revenue
And Refer to
IT:PA-5
IIP
MARCH 12, 1925.
MR. JOHN W. ANDERSON,8109 Jefferson Avenue, East, Detroit, Michigan.
SIR: In accordance with the provisions of Section 274(d) of the Revenue Act of 1924, there has been assessed against you an income and profits tax amounting to $1,660,931.21 for the taxable year 1919, the details of which are set forth in the attached statements.
*1131 Under the provisions of Section 279(a) of the Act you have the right to file with the Collector of Internal Revenue, within ten days after notice and demand for payment, a claim for abatement of this tax or any part thereof. The claim should have attached to it all evidence and data upon which you rely in support thereof, and should be accompanied by a bond not exceeding double the amount of*3448 the claim, with such sureties as the Collector deems necessary. When the claim is received by the Collector it will be transmitted to the Commissioner of Internal Revenue, Washington, D.C., who will notify you of the action taken.
Respectfully,
J. G. BRIGHT,Duputy Commissioner.
Inclosures:
Statements.
126. Attached to this letter was the following statement:
STATEMENT
IT:PA-5
IIP
In Re: Mr. John W. Anderson
8109 Jefferson Avenue, East,
Detroit, Michigan.
A reexamination of your income tax return filed for the year 1919 discloses a deficiency in tax amounting to $1,660,931.21 as shown in the following statement:
Block D. as reported:
| 325 shares Ford Motor Company stock - | ||
| Sales price | $4,062,500.00 | |
| March 1, 1913 value | 3,084,035.50 | |
| Profit | 978,464.50 | |
| March 1, 1913, value reported | 3,084,035.50 | |
| March 1, 1913, value corrected | 856,050.00 | |
| Profit understated | 2,227,985.50 | |
| Net Income - original return | $576,593.31 | |
| Corrected office letter 1/26/24 | 14,142.80 | |
| Profit understated as outlined above | 2,227,985.50 | |
| Corrected net income | 2,818,721.61 | |
| Dividends reported | $205,615.05 | |
| Dividends office letter of 2/3/21 | 313,225.02 | |
| Interest subject to surtax | 21.25 | |
| 518,861.32 | 518,861.32 | |
| Surtax at 1918 and 1919 rates | 3,337,582.93 | |
| Normal tax at 4% | 160.00 | |
| Normal tax at 8% | 225,337.73 | |
| Surtax | 2,102,938.90 | |
| Corrected tax liability | 2,328,436.63 | |
| Tax paid at source | 513.82 | |
| Total tax | 2,327,922.81 | |
| Previously assessed: | ||
| Original tax | $489,430.59 | |
| March, 1921 | 171,837.99 | |
| April, 1924 | 5,723.02 | |
| $666,991.60 | ||
| Additional tax due | 1,660,931.21 |
*3449 *1132 This additional tax is over and above any outstanding assessments now appearing on the Collector's lists.
Payment of the tax should not be made until notice and demand is received from the Collector of Internal Revenue for your district.
127. The additional assessment of $1,660,931.21 was based on the reduction 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.
128. Demand was thereafter made upon petitioner by the collector of internal revenue at Detroit that he pay the tax so assessed. Thereafter, on March 23, 1925, the petitioner filed in the office of the collector of internal revenue at Detroit his claim for the abatement of the assessment together with his bond for $2,000,000.
129. 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*3450 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 the correct value.
The Bureau records show that your return for 1919 was filed on March 13, 1920; the statute of limitation 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*3451 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.
*1133 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. BLAIRCommissioner.
130. At the time of delivering this letter to Couzens it was not clear in Commissioner Blair's mind that a tax was due.
131. Under date of April 20, 1925, petitioner's attorney in a letter addressed to the Commissioner requested a hearing on the claim for abatement and asked for information as to the basis and method by which the March 1, 1913, value was fixed at $2,634 a share and further requested permission to examine the files of the Ford Motor Co. in the Bureau up to the date of the sale of the stock. By letters dated*3452 May 16 and telegrams dated June 16, petitioner's attorney renewed these requests and asked for confirmation of a refusal to petitioner to examine the Ford files.
132-135. These findings of fact are respectively identical with findings of fact P133 to P136, inclusive, in James Couzens, Docket No. 10438, and such findings are, by reference, incorporated herein and made part hereof.
136. Under date of November 19, 1925, the Commissioner sent to the petitioner the following letter, which forms the basis of this proceeding:
TREASURY DEPARTMENT
Washington
Office of
Commissioner of Internal Revenue
Address Reply to
Commissioner of Internal Revenue
And Refer to
IT:PA:3
LWB:307
Nov. 19, 1925.
Mr. JOHN W. ANDERSON,
623 Moffat Building, Detroit, Michigan.
SIR: Your claim for the abatement of $1,660,931.21, additional individual income tax for 1919, has been examined and will be allowed for $222,104.86. The details relative to the examination of your return for 1919 are set forth in the attached statement.
In accordance with the provisions of Section 279(b) of the Revenue Act of 1924, you are allowed 60 days from the date of this letter within which*3453 to file an appeal to the Board of Tax Appeals contesting in whole or in part the correctness of this determination.
If you acquiesce in this determination and do not desire to file an appeal, you are requested to sign the enclosed agreement consenting to the assessment of the deficiency and forward it to the Commissioner of Internal Revenue, *1134 Washington, D.C., for the attention of IT:PA:3: 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. BLAIRCommissioner.
By C. R. NASH
Assistant to the Commissioner.
Enclosures:
Statements.
Agreement - Form B.
137. Attached to this letter was the following statement:
STATEMENT
IT:PA:3
LWB:307
In re: Mr. John W. Anderson,
623 Moffat Building,
Detroit, Michigan.
| Year | Deficiency in Tax |
| 1919 - Deficiency assessed | $1,660,931.21 |
| Deficiency reduced | 222,104.86 |
| Balance | 1,438,826.35 |
The total net income on the corrected return is $3,033,765.72 which is arrived at as follows:
| 1919 | ||
| D. Net profit from sales | $2,910,695.60 | |
| F. Tax-free covenant bond interest | 25,691.23 | |
| G. Interest | 57,101.96 | |
| Total | 2,993,488.79 | |
| Total deductions allowable: | ||
| Interest paid | $3,790.87 | |
| Taxes paid | 29,208.93 | |
| Losses | 349,127.79 | |
| Contributions | 67,660.00 | |
| Other deductions (See Revenue Agent's report dated | ||
| May 18, 1921) | 31,775.55 | |
| 478,563.14 | ||
| Total net income subject to normal tax | 2,514,925.65 | |
| K(a) Dividends | 518,840.07 | |
| Total net income subject to surtax | 3,033,765.72 |
*3454 The present audit discloses the understatement from the sale of Ford Motor Company stock to be $1,930,987.50 instead of $2,227,985.50 as stated in office letter dated March 12, 1925. The decrease in the amount of profit discloses by the audit dated March 12, 1925, is due to the fact that the March 1, 1913, value of the said stock has been determined to be $3,547.84 a share instead of $2,634.00 a share as considered in the former audit.
In connection with your contention relative to the deduction claimed of $14,142.80, representing contributions to the Detroit Patriotic Fund in 1919, you are advised that this amount has been allowed as a deduction against the *1135 gross income. In connection with your contention relative to the item $21.25, representing interest, you are advised that this amount has been eliminated from the income subject to surtax, in accordance with the recommendations contained in the Revenue Agent's report dated May 18, 1925.
In connection with the reference in your brief relative to the claim for the crediting of $29,598.07, stated to have been allowed as an overassessment on your 1917 return against tax due on your 1919 return, you are advised*3455 that the prior audit of your 1917 return disclosed a total tax liability of $76,965.92 and a total tax assessed of $83,528.98, which assessment was arrived at as follows:
| Originally assessed, Ser. #30408505 | $54,931.78 |
| Additional tax assessed, Dec., 1919, List, page 0, line 0 | 376.23 |
| Tax assessed on amended return, Ser. # Apr. 300015 | 29,598.07 |
| Total tax assessed | 84,906.08 |
| Less assessment abated March 1, 1919 | 1,377.10 |
| Balance | 83,528.98 |
| Tax due | 76,965.92 |
| Overassessment | 6,563.06 |
You are further advised that inasmuch as a credit for an overassessment of $29,580.57 for 1917, as stated in office letter dated February 8, 1921, was not actually made against your tax for 1919, the total tax assessed for 1919 is $2,327,922.81 instead of $2,357,922.81 as inferred by you in your brief. The assessments for 1919 as disclosed by the records of this office are as follows:
| Tax assessed, Account #304897 | $489,430.59 |
| Tax assessed, March, 1921, List, page 0, line 1 | 171,837.99 |
| Tax assessed, April, 1924, List, page 0, line 0 | 5,723.02 |
| Tax assessed, March, 1925, List, page 0, line 0 Spl. #5 | 1,660,931.21 |
| Total tax assessed | 2,327,922.81 |
In view of the*3456 fact that the total tax liability on the corrected net income is determined to be $2,105,817.95, the adjustment of these items discloses an overassessment of $222,104.86.
The overassessment shown herein will be made the subject of a certificate of overassessment which will reach you in due course through the office of the Collector of Internal Revenue for your district. If the tax in question has not been paid, the amount of overpayment will first be credited against unpaid income tax for another year or years and the balance, if any, will be refunded to you by check of the Treasury Department. It will thus be seen that the overassessment does not indicate the amount which will be credited or refunded since a portion may be an assessment which has been entered but not paid.
138. The March 1, 1913, value of $3,547.84 for each share of stock of the Ford Motor Company was determined as follows:
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.
*3457 *1136 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 |
139. Stock in the Ford Motor Co. was also sold in 1919 by James Couzens, John F. Dodge, Horace E. Dodge, Horace H. Rackham, Rosetta V. Hauss, 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 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, *3458 jeopardy assessments were made against Couzens, Rackham, and the Grays, and a notice of deficiency was sent to Mrs. Hauss. 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, 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, a revised deficiency notice on the changed basis was sent to Mrs. Hauss, and the revised value was stated in answers to petitions filed with the Board by the executors of the Dodge Estates.
140. On April 6, 1920, the petitioner paid to the collector of internal revenue at Detroit, Mich., the sum of $29,598.07 on account of additional income tax for 1917. The Bureau of Internal Revenue subsequently held that this amount of tax was not due for 1917 and the petitioner accordingly filed a claim for refund. Under date of March 18, 1924, the Commissioner advised the petitioner that the claim for refund*3459 was being disallowed for the reason that the $29,598.07 had been allowed as a credit against income tax for 1919.
141-332. 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.
*1137 333. The fair market price or value on March 1, 1913, of the 325 shares of stock which were owned by the petitioner on that date and sold by him on or about July 7, 1919, was $3,250,000.
OPINION.
STERNHAGEN: The principal issues in this proceeding have been decided in companion cases. The differences in fact do not require a different result. In , the Board decided that the question of the fair market price or value on March 1, 1913, of the several petitioners' shares in the Ford Motor Co. was open for determination by respondent and redetermination by the Board, and that under the circumstances the jeopardy assessment was within the respondent's authority. Examining the facts, the Board found the value of the Ford stock on March 1, 1913, to be at the rate of $10,000 a share. *3460 We reach the same conclusions here.
The petitioner's contention as to the dividend received in 1919 as a result of the decree of the court in Dodge v. Ford Motor Co. was ruled on adversely in , and we reach the same decision here.
The petitioner pleaded that the jeopardy assessment was barred by the limitation provisions of the Revenue Acts of 1918, 1921, and 1924. The evidence shows that the petitioner's return was filed March 13, 1920, and the assessment was made March 12, 1925. This was within the statutory period of five years and hence the assessment was not barred.
The allegation as to a mathematical error has not been referred to since the pleadings were filed. There is clearly an inconsistency in the statement attached to the deficiency notice (P137). The petitioner attributes this to a mistake in adding the deductions and the respondent to a mistake in stating the deduction for charitable contributions. Evidence is lacking as to the true source of the error, and we therefore sustain the respondent.
The petitioner claims that his 1919 tax should be credited by the amount of $29,598.07 overpaid for 1917. *3461 The Board has frequently held that it may not determine the year or years in which the Commissioner should apply a credit for an overpayment of tax for an earlier year not before it. ; . The respondent alleges that he credited the amount against 1917 additional taxes, and since this is an administrative question for him to decide, the petitioner must fail on this point.
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.