# F. P. E. Noteholders Corp. v. Commissioner > United States Tax Court · July 20, 1945 · 5 T.C. 472 URL: https://www.frixlaw.com/law-library/cases/4480860 ## Case - **Full name:** F. P. E. Noteholders Corporation v. Commissioner of Internal Revenue - **Court:** United States Tax Court - **Decided:** July 20, 1945 - **Citations:** 5 T.C. 472; 1945 U.S. Tax Ct. LEXIS 118 - **Precedential status:** Published - **Opinion:** Dissent by Murdock - **Judges:** Him, Disney, Arnold, Murdock - **Cited by:** 2 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4480860 ## Opinion text Murdock, J., dissenting: I think that whatever investment the petitioner had in the property was lost on November 3, 1939, when the period of redemption expired, and consequently the amount of that investment could not be added to the cost of the property when the petitioner subsequently acquired the property in the scavenger sale. ARnold, J., agrees with this dissent. Him,. J., dissenting: The majority holds that petitioner had an enforceable legal interest in the Chesterfield Farm property at the time of the scavenger sale in February 1940, which interest is valued at $25,000 and which amount is to be added to the purchase price at the sale in computing petitioner’s basis on that property. With this conclusion I can not agree. The stipulated facts show that the petitioner was organized under the laws of Michigan on December 7, 1938, pursuant to a 77-B reorganization plan. They further show that as of May 1, 1938, Francis Palms Estate Properties, Inc., the debtor in that reorganization, was the owner of Chesterfield Farm and that on that date the property was acquired by the State of Michigan at a tax sale. On August 10, 1938, the plan of reorganization whereunder petitioner was to be organized was confirmed by order of the court. The plan provided that Chesterfield Farm was to be transferred to petitioner when organized. The majority has found as a fact that as a result of reorganization proceedings this petitioner acquired the right to redeem Chesterfield Farm from the tax sale; that the eighteen-month statutory period of redemption expired November 3, 1939; and that petitioner did not exercise such right of redemption. It is stipulated that on that date the State of Michigan acquired an absolute title to the property. In February 1940 the property was sold at a public auction by the State of Michigan and was purchased by petitioner for $21,464.86. It seems to me that under the Michigan statutes existing at the time, that is, 1939 and 1940, an owner of real estate which had been sold for taxes had two rights in connection therewith. One was the right to redeem from the tax sale. This right is assignable and merchantable, and subject to conveyance by deed or other instrument. Mercer v. Stephens, 185 Mich. 290 ; 151 N. W. 1032 . The right to redeem comes into existence at the time of the tax sale and may be exercised by the holder thereof at any time within the eighteen-month period of redemption. The other is the privilege of matching bids at the scavenger sale conducted by the state after the period of redemption has expired, at which time the state has an absolute fee simple title. Once the state acquires title after the expiration of the period of redemption, all rights in the land of the former owner are cut off. Welch Co. v. State Land Office Board, 295 Mich. 85 ; 294 N. W. 377 . The right to exercise the privilege of matching bids is contingent on the acceptance by the State Land Office Board of a bid at a scavenger sale. It has been held that this right to match the highest bid is not a condition upon which the state acquires title. This privilege can not arise until a sale has been held and a bid accepted. Until such bid is accepted it is not a present interest or a vested right. Welch Co. v. State Land Office Board, supra. The State Land Office Board has the power to reject bids received at a scavenger sale, in which event the property becomes subject to disposition by the board under a different section of the statute. That section provides that a municipality has a right upon request to receive a deed to any property so held on the ground that it is needed for public purposes. See Porter v. State Land Office Board, 13 N. W. (2d) 837 . In view of the broad discretion and control given the State Land Office Board over the disposition of lands acquired as the result of a tax sale, I do not see how a former owner could be said to have any real property right therein. The privilege of matching bids is subject to many conditions, none of which may be fulfilled. It is a mere expectancy which may never be realized. The entire purport of the Michigan decisions is to this effect. These contingencies which may never happen are, in my opinion, too remote to justify the treatment given them by the majority here. They have given this privilege of matching bids at a scavenger sale the same dignity rightly accruing to the right to redeem from the tax sale. If this were a question of deductibility of a loss, it seems to me that a taxpayer would have real difficulty in claiming its loss in a taxable year after the one in which the statutory period of redemption had expired. The right of redemption from the tax sale is a real and substantial right and capable of being measured for loss purposes under the revenue acts. The $25,000 paid by this petitioner for any rights it received in the reorganization proceedings certainly could not be said to have been paid for anything else. I think it was the intention that this amount be paid for the right of redemption and it is so stipulated. The privilege of matching bids did not exist at the time and could not come into being until a scavenger sale was held and an acceptable bid was received. In the light of the majority opinion there lurks the question of whether a deductible loss would be sustained by the failure of a former owner to exercise this privilege. The privilege of matching bids is so illusory in nature and subject to so many contingencies that I do not see how failure to use it could result in a loss, but such result, whether or not so intended, is a corollary to the holding of the majority. In any event, in the case before us petitioner was not in existence at the time of the tax sale in May 1938. It has been held that the privilege of matching bids is limited to persons having an interest in the land sold at the time of the tax sale. Redford Union Schools v. State Land Office Board, 297 Mich. 535 ; 298 N. W. 124 . Such was the law of Michigan prior to a nonretroactive amendment enacted in 1941. Hence I do not see how it can be held that petitioner acquired the privilege of matching bids by virtue of the reorganization proceedings. See Meltzer v. State Land Office Board, 301 Mich. 541 ; 3 N. W. (2d) 875 . I think the case of Cobleigh v. State Land Office Board, 305 Mich. 434 ; 9 N. W. (2d) 665 , forecloses petitioner in this proceeding. In that case a trustee in bankruptcy brought suit for a deed claiming to be entitled to match bids at a scavenger sale as the successor of interest of his bankrupt. The court dismissed the bill. In so doing, it was stated therein: The bankrupt, Nathan Greenberg, during the period immediately preceding his adjudication had two separate and distinct rights. Under the provisions of 1 Comp. Laws 1929, § 3467, as amended by Act No. 52, Pub. Acts 1939 (Comp. Laws Supp. 1940, §3467, Stat. Ann. 1940 Cum. Supp. §7.120), he could redeem his land from the tax sale before title vested in the State, and this privilege of redemption was transferable and assignable. * * * This right of redemption under the transferability test of the Bankruptcy Act was property of the bankrupt, which passed to his trustee. The other right belonging to Greenberg was created by section 7 of Act No. 155, Pub. Acts 1937, as amended by Act No. 244, Pub. Acts 1939 (Comp. Laws Supp. 1940, §3723-7, Stat. Ann. 1940 Cum. Supp. §7.957). As an owner, he had the privilege under this section of the statute of matching the highest bid at the “scavenger sale” and thereby redeem his property, but: “The right to match the highest bid at the scavenger sale is a granted privilege, limited to persons having an interest in ihe land at the time of the sale for unpaid taxes.” etc. Redford Union Schools v. State Land Office Board, 297 Mich. 535, 537 , 298 N. W. 124, 125 . See, also Stickler v. State Land Office Board, 297 Mich. 271 , 297 N. W. 488 . This privilege was neither a vested nor assignable right. * * * ******* Since the granted privilege to match a bid is not an assignable right and is not one that the bankrupt could “by any means have transferred,” it is not a property right which vested in Greenberg’s trustee in bankruptcy. ******* I think that case is controlling here and that the reorganization plan gave petitioner only the right to redeem from the tax sale, which right lapsed without having been exercised. I can not agree that petitioner acquired any right or interest by virtue of the reorganization proceedings which would permit it to match bids at the scavenger sale as the person having an interest in the real estate. The fact that petitioner was treated as owning this right and permitted to purchase under contract is not controlling. Under the Cobleigh case, the privilege could not pass to petitioner by virtue of the reorganization proceedings. I think it follows that petitioner should compute its basis of gain or loss on this real estate by the actual cost at the sale and nothing more. Petitioner suffered a loss cognizable for tax purposes when the statutory period of redemption expired, and if claimed it would have been deductible in computing its tax liability for the year 1939. ARNOLD, J., agrees with this dissent. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/4480860. Public record. Not legal advice.