Argued: March 14, 15, 1935.
In 1926, Turner received in distribution of his father's estate $20,000 in bonds. Wishing to change his inheritance into stock, he opened a marginal account with a stock broker; sold the bonds; and, with the proceeds as margin, purchased, from time to time during that year, an aggregate of 1,200 shares of United Gas Improvement Company stock at a cost of $117,202.50. On this stock the broker received for him, later in 1926, 300 shares as a dividend. There were no further operations in 1926 or in 1927. His marginal account became active in 1928. At the beginning of the year he was long 1,500 shares of this stock; in May he sold 300 shares for $44,619 net; in June he bought 1,000 shares for $143,225; in October he sold 500 shares for $73,865; and in November 500 shares for $74,115. Thus, at the close of the year, he was long 1,200 shares.
'We think the petitioner's (Turner's) communication to his broker of his intention to hold the 1200 shares first purchased as an investment was in effect an order to his broker not to sell those shares, and when, two years later, he ordered the broker to make two sales in lots of 500 shares each, they were, conformably with the original instructions, the 1000 shares last purchased. The petitioner's instructions excluding from sale the shares first purchased were in effect an identification of the shares later sold as those last purchased.
Third. If the facts found by the Board of Tax Appeals had been what the Court of Appeals assumed them to be, there would have been such an identification of shares sold with shares purchased as to preclude the Commissioner from applying the 'First-in, first-out' rule. The Court of Appeals assumed that, 'What Turner did in this case, acting and speaking through his attorney, was to communicate to his broker his intention to hold for investment the shares of U.G.I. he originally purchased.' The facts found by the Board of Tax Appeals do not bear out this assumption of the court. The Board's findings were that, 'The decedent (Turner) always intended to retain the ownership on margin of 1,200 shares of the United Gas Improvement Company stock'; and that, 'an employee of the broker understood * * * that the decedent desired to retain 1,200 shares to take the place of the bonds which he had received from his father.' The difference between the Board's findings and the court's statement of the facts is obviously vital. The court held that Turner's communication of his intention 'was in effect an order to his broker not to sell those shares'; that 'when, two years later, he ordered the broker to make two sales in lots of 500 shares each, they were, conformably with the original instructions, the 1,000 shares last purchased.' But if the employee was told, as the Board found, merely that Turner 'desired to retain 1,200 shares (of the U.G.I. stock) to take the place of the bonds which he had received from his father,' he would naturally believe that so long as any 1,200 shares of the stock were retained, it was immaterial to which of the lots the sales in 1928 were attributed; and hence there was no identification. Thus it was only by departing from the facts as found by the Board of Tax Appeals that the court found justification for reversing the Board's decision.
Sixth. The Court of Appeals did not explicitly hold that the Board's finding as to Turner's communication to his broker was without substantial support in the evidence. The court, in its opinion, does state that, 'The evidence shows conclusively that Turner was sentimental about keeping the original 1,200 shares as an inheritance from his father; that his 'intention' was to retain as an investment the shares originally purchased and sell in speculation the shares more recently acquired.' It does not state that the evidence was equally conclusive as to the communication to the broker of this exact intention. There was, it is true, testimony to the effect that 'from the very beginning West & Company knew Mr. Turner's intentions and knew he was keeping the first purchase of 1,200 shares'; and the failure of the Board so to find was assigned as error by the taxpayer in his petition for review. But there was also testimony showing that Turner, during 1928, traded heavily in 20 other issues of stock. The Court of Appeals did not consider whether, in view of this and other evidence, the Board might reasonably have concluded that the testimony as to the broker's knowledge of Turner's intention was not entirely accurate, and that the broker's only clear understadning of Turner's intention was that, throughout his extensive trading, 1,200 shares of United Gas Improvement Company stock were to remain in his account. Since this question was not considered in the court below nor argued here, the case must be remanded to the Court of Appeals for further consideration.
Art. 4, par. 60, Regulations No. 33 (Revised), Revenue Acts of 1916 and 1917; Art. 39, Regulations Nos. 45, 62, 65, and 69, Acts of 1918, 1921, 1924, and 1926, respectively; Art. 58, Regulations Nos. 74 and 77, Acts of 1928 and 1932, respectively; Act. 22(a)-8, Regulations No. 86, Act of 1934.
The original regulation, Art. 4, par. 60, Regulation No. 33 (Revised), read, 'When stock is sold from lots purchased at different times and at different prices, and the identity of the lots can not be determined as to the dates of purchase, the stock sold shall be charged against the earliest purchases of such stock.' It has been suggested that, 'Under the language quoted from Regulations 33, ('as to the dates of purchase,' omitted in subsequent regulations) it might be argued that the identification intended could have been accomplished merely by recording 'the dates of purchase', rather than by requiring physical identification of the certificates.' Wilkins, Identity of Marginal Transactions, Int. Rev. News, v. 4, no. 7, p. 5 (1931).
Compare Howbert v. Penrose (C.C.A.) 38 F.(2d) 577, 68 A.L.R. 820; Skinner v. Eaton (C.C.A.) 45 F.(2d) 568; Snyder v. Com'rs of Internal Revenue (C.C.A.) 54 F.(2d) 57; Com'r of Internal Revenue v. Merchants' & Mfrs.' Fire Ins. Co. (C.C.A.) 72 F.(2d) 408.
Compare Tracy v. Com'r of Internal Revenue (C.C.A.) 53 F.(2d) 575, 578, 579; Slayton v. Com'r of Internal Revenue, 76 F.(2d) 497, decided March 26, 1935, by the Circuit Court of Appeals for the First Circuit; Heywood Boot & Shoe Co. v. Com'r of Internal Revenue, 76 F.(2d) 586, decided April 1, 1935, by the Circuit Court of Appeals for the First Circuit.
Compare Bishoff v. Com'r of Internal Revenue (C.C.A.) 27 F.(2d) 91, 92; Washburn v. Com'r of Internal Revenue (C.C.A.) 51 F.(2d) 949, 951; Tricou v. Helvering (C.C.A.) 68 F.(2d) 280, 285.
Compare Royal Packing Co. v. Com'r of Internal Revenue (C.C.A.) 22 F.(2d) 536, 538; Com'r of Internal Revenue v. Langwell Real Estate Corporation (C.C.A.) 47 F.(2d) 841, 842; Independent I. & C. Storage Co. v. Com'r of Internal Revenue (C.C.A.) 50 F.(2d) 31, 33; Kansas City Southern Ry. Co. v. Com'r of Internal Revenue (C.C.A.) 52 F.(2d) 372, 379; Houston v. Com'r of Internal Revenue (C.C.A.) 53 F.(2d) 445; Underwood v. Com'r of Internal Revenue (C.C.A.) 56 F.(2d) 67, 73; Eau Clair Book & Stationary Co. v. Com'r of Internal Revenue (C.C.A.) 65 F.(2d) 125, 126.
Compare Kendrick Coal & Dock Co. v. Com'r of Internal Revenue (C.C.A.) 29 F.(2d) 559, 564; Francisco Sugar Co. v. Com'r of Internal Revenue (C.C.A.) 47 F.(2d) 555, 558; Belridge Oil Co. v. Helvering (C.C.A.) 69 F.(2d) 432.
The Solicitor General stated in his petition to this Court for certiorari, that the question presented was 'whether shares of stock held on margin are capable of identification so that a taxpayer selling part of his holdings may select, as his basis for determining gain or loss, the cost of any particular lot'; and counsel for the government may have contended in the Court of Appeals, as he did here, that such identification is impossible. It is also true that the Board of Tax Appeals in other cases has approved the rule for which the government is now contending. See Stryker v. Com'r of Internal Revenue, 21 B.T.A. 561; Leng v. Com'r of Internal Revenue, 22 B.T.A. 149; Seelye v. Com'r of Internal Revenue, 29 B.T.A. 695; compare Kelchner v. Com'r of Internal Revenue, 31 B.T.A. 262.
Compare Lewis-Hall Iron Works v. Blair, 57 App.D.C. 364, 23 F.(2d) 972, 974, 975; Hurwitz v. Com'r of Internal Revenue (C.C.A.) 45 F.(2d) 780, 781; Dickey v. Burnet (C.C.A.) 56 F.(2d) 917, 918.
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