Stockton Harbor Industrial Company v. Commissioner of Internal Revenue

We are called upon to review a decision of the Tax Court of the United States. The main question before us is whether the petitioner, to whom we. shall refer as the taxpayer, acquired its property in a reorganization and whether the money derived from a condemnation, of land by the United' States Government resulted in a capital gain.,

I

The Scope of Review

The taxpayer filed its tax return on the assumption, that the basis of the land for computing its tax liability in 1944 and 1945 was its cost to it, amounting to $380,000.00' and that the gain from the sale of the condemnation of the land was capital gain. The Commissioner disallowed both contentions in his deficiency letters and his action was sustained by the Tax Court, which found:

This is a petition to review the decision. Under the provisions of the Internal Revenue Code the scope of our review, except as provided in 28 U.S.C. § 1254 , with which we are not concerned here, is stated to be:

In applying this provision, this court and other courts have held that it is not our function to retry questions of fact determined by the trial court upon conflicting evidence or even upon uncontradicted evidence where different…

(concurring in part and dissenting in part).

I think, as to the ordinary income or capital gains question, under the evidence the Tax Court would have been justified in finding that the property either was or was not “property used in the trade or business of the taxpayer” and “held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.” We should not disturb the finding on this question reached upon competent evidence.

On the question of whether the Tax Court was correct in its conclusion that the transaction by which Rough and' Ready Island went into Stockton Harbor Industrial Company was a tax free reorganization, I dissent from the majority opinion. While I attach no importance to the collateral transaction of the simultaneous loan made by a stockholder of the new company to Lindley Patrick Farms, Inc., I do think the manner of handling the cash payment through escrow to pay up delinquencies on the mortgage on the property for the account of Lindley Patrick Farms, Inc., spoils the reorganization as a tax free reorganization, and that upon reorganization Rough and Ready Island was entitled to a new tax basis for the computation of…

216 F.2d 638 STOCKTON HARBOR INDUSTRIAL COMPANY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. No. 13615. United States Court of Appeals Ninth Circuit. November 1, 1954. Rehearing Denied December 1, 1954. 1 Valentine Brookes, Arthur H. Kent, San Francisco, Cal., for appellant. 2 H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Lee A. Jackson, Melva M. Graney, Sp. Assts. to Atty. Gen., Charles W. Davis, Chief Counsel, Bureau of Internal Revenue, Washington, D. C., for appellee. 3 Before ORR and CHAMBERS, Circuit Judges, and YANKWICH, District Judge. 4 YANKWICH, District Judge. 5 We are called upon to review a decision of the Tax Court of the United States. The main question before us is whether the petitioner, to whom we shall refer as the taxpayer, acquired its property in a reorganization and whether the money derived from a condemnation of land by the United States Government resulted in a capital gain. 6 * The Scope of Review 7 The taxpayer filed its tax return on the assumption that the basis of the land for computing its tax liability in 1944 and 1945 was its cost to it, amounting to $380,000.00 and that the gain from the sale of the condemnation of the land…