Achille F. Ford v. United States. Jeanne F. Harlow v. United States

LITTLETON, Judge

(Retired) (dissenting) .

I am of the opinion from all the facts and circumstances of these cases that plaintiffs should be held bound by the valuation of the stock in question placed thereon by the executors of the estate of A. F. Israel at the time of his death for estate tax purposes, in determining the profit upon a subsequent sale thereof by the residuary legatees of said estate. I think the plaintiffs should be held to be estopped to ignore such valuation which inured materially to their benefit and seek a higher valuation upon a subsequent sale thereof by them. It is true that they were minors at the time of the original valuation in the making of the estate tax return but the executors were acting for and on their behalf. I therefore agree with the opinion of Commissioner White of this court and adopt the same as a part of this dissenting opinion as follows:

I believe that the correct principles governing the disposition of these cases were stated in Alamo National Bank v. Commissioner of Internal Revenue, 5 Cir., 1938, 95 F.2d 622 , certiorari denied 304 U.S. 577 , 58 S.Ct. 1047 , 82 L.Ed. 1541 . In that case, a company that was wholly owned by Lewis W. Alexander and his wife acquired prior to March 1, 1913 an exclusive franchise to bottle and distribute Coca Cola in certain Texas counties. In 1921, the company was dissolved and the assets were all taken over by the Alexanders. Income in the amount of $17,035.40 as a liquidating dividend from the transaction was returned by them in 1921 for Federal income tax purposes, and taxes were paid and accepted on that basis. No value was assigned to the franchise in the computation with respect to the gain in the amount of $17,035.40. The business was continued by the Alexanders, under the same franchise previously mentioned, until September 1931, when the business was sold for $775,000. In computing, for 1931 Federal income tax purposes, the amount of the gain realized by them from the sale of the business, the Alexanders took the position that there should be included in the cost basis the amount of $216,560 as representing the true value of the franchise in 1921. The Board of Tax Appeals held that the Alexanders were estopped to assert the higher valuation, and the Board’s decision was subsequently reviewed by the United States Circuit Court of Appeals for the Fifth Circuit. In affirming the decision of the Board of Tax Appeals, the court said ( 95 F.2d at page 623 ):

“ * * * [H]onesty, good faith, and consistency are due in tax accounting. The right and wrong of things and equitable principles have a place in tax matters. * * * In income taxation what is done in one tax year is sometimes projected into another where the same fact must govern. There being continuity, there ought to be consistency in treatment. * * * So if a taxpayer who acquired gain in an exchange of property sets up as its measure a value of what he received in which the Commissioner acquiesces, that value is the basis to be taken in measuring a further gain on a sale of the property in a later year. The taxpayer cannot say: “I was mistaken. The value was many times what I said it was. I therefore realized less gain on the last sale,” without doing justice all around in correcting his mistake. The reverse principle is also true if the Commissioner, in reviewing the return, should correct the first valuation and the taxpayer should acquiesce. The Commissioner could not repudiate his action when that value again became a determining factor. * * * It is no more right to allow a party to blow hot and cold as suits his interests in tax matters than in other relationships. Whether it be called es *25 toppel, or a duty of consistency, or the fixing of a fact by agreement, the fact fixed for one year ought to remain fixed in all its consequences, unless a more just general settlement is proposed and can be effected. The law requires restoration as a condition of rescission, just as equity declares that one asking equitable aid must give effect to the equities of his opponent. When this taxpayer, who best knew what he received in 1921 and its value and for this reason was required to declare it under oath, fixed the value so as to show a present gain of only $17,035.40, and the Commissioner acquiesced, that value must stand as the correct basis when the same property was sold at a further gain in 1931. If there was a mistake in the first instance it ought not to be corrected unless corrected in all its bearings, and that is not offered by the taxpayer.”

In the proceedings before the Commissioner of Internal Revenue with respect to the Federal estate tax on the estate of Achille Francis Israel, the Commissioner accepted the valuation in Brazilian money (1,000 milreis per share) that was reported by the executors under oath as the fair market value of the stock in the Santos Company owned by the decedent. While it is true that the Commissioner determined that the exchange rate of 4.65 cents per milreis should be used in computing the United States dollar value of the stock, rather than the exchange rate of 2.325 cents per milreis used by the executors in their estate tax return, this adjustment was not objected to by the executors either before the Commissioner or before the Tax Court, when the executors sought a review by the Tax Court of another action taken by the Commissioner. The decision of the Tax Court respecting the amount of the estate tax liability reflected the valuation placed by the executors on the stock in the Santos Company owned by the decedent, as adjusted by the Commissioner of Internal Revenue with regard to the exchange rate.

The executors of the estate of Achille Francis Israel should have been, and presumably were, the persons best qualified to know the fair market value of the shares of stock in the Santos Company that were included in the estate. Since their representations under oath on this point were accepted by the United States in determining the amount of the Federal estate tax, it is my opinion that the valuation of the stock fixed in the estate tax proceedings should be regarded as the proper basis of the stock for the purposes of the present litigation, particularly since the amount of the Federal estate tax cannot now be adjusted upward if the executors undervalued the stock for estate tax purposes.

It is true that the plaintiffs were minors at the time and did not take any part in the representations that were made by the executors of their father’s estate respecting the value of the stock in the Santos Company. However, the plaintiffs, as residuary legatees under their father’s will, directly benefited from the action of the executors if — as the plaintiffs now contend — the executors undervalued the stock in the Santos Company for estate tax purposes; and I believe, therefore, that the plaintiffs are bound by the executors’ action in this respect.

For the reasons stated above, it is my opinion that the plaintiffs are not entitled to recover, and that their petitions should be dismissed.

In any event, even if the plaintiffs are not bound by the valuation of the stock by the executors as of the date of the death of A. F. Israel, I am of the opinion that in justice, equity and fair dealing the Government should recoup from the recovery allowed these plaintiffs the amount of the estate tax underpaid by reason of the action of the executors in very materially undervaluing this stock as of the date of the death of A. F. Israel for whose estate they were charged with making a correct valuation and return under oath of the property of said estate, and on this point I therefore concur in the opinion of Chief Judge JONES.