Before EVANS, SPARKS, and FITZHENRY, Circuit Judges.
This is a petition for review of a decision of the Board of Tax Appeals pursuant to sections 1001 and 1002 of the Revenue Act of 1926, c. 27, 44 Stat. 9, 109, 110. USC Supp. VI, title 26, §§ 641, 642 (26 USCA §§ 1224 and note 1225). That decision affirmed a determination of the Commissioner that there was a deficiency in income tax due from petitioner for the year 1922 in the sum of $20,557.96.
There is no controversy as to the primary facts involved as they appear in the findings of fact of the Board of Tax Appeals. Petitioner is the president of the American Appraisal Company, a personal service corporation of a close character with its principal office in Milwaukee, Wisconsin. Its only business is that of making appraisals and valuations of property, and it owns no real estate. On December 31, 1922, it had a capital stock of $300,000, divided into 3,000 shares of the par value of $100 each. On March 13, 1917, its board of directors passed the following resolution:
"Resolved, that in consideration of Messrs. L. H. Olson, F. S. Olson and A. F. Bailey agreeing to remain continuously in the employ of the company, for a period of five years from March 1, 1917, their respective ledger accounts be each credited monthly with $333.33 1/3 commencing with the present month.
"That, on March 1st of each year, in consideration of the total credit balance thus credited, there be issued three certificates for forty shares each, par value $100.00 per share of the capital stock of the Company, to a Trustee to be designated by Messrs. L. H. Olson, F. S. Olson and A. F. Bailey; said certificate to be held for and on behalf of these three gentlemen.
"That all dividends which may be paid on shares as issued to the Trustee shall, immediately as such dividends are received, be assigned to Messrs. L. H. Olson, F. S. Olson and A. F. Bailey respectively, and when they respectively shall have been continuously in the employ of the Company for a period of five years, namely on March 1, 1922, said Trustee shall immediately assign all of the six hundred shares then issued, to Messrs. L. H. Olson, F. S. Olson and A. F. Bailey respectively, in equal amounts of two hundred shares each.
"In the event of the death while in the employ of the Company, of Mr. L. H. Olson, Mr. F. S. Olson or Mr. A. F. Bailey or either of them prior to March 1, 1922, said Trustee shall assign and deliver to the legal representative of the decedent, all of the shares issued in his behalf at the time of his death, subject only to provision that the shares so issued shall first be offered to the Company by the heir or heirs of the decedent before they may be sold in the open market."
In accordance with that resolution petitioner's account on the company's books was credited with $333.33 each month for two years ending April 1, 1919. In that month an account designated as O. F. Hiemke, Trustee for F. S. Olson, L. H. Olson, and A. F. Bailey, was opened on the books of the company, and thereafter, $1,000, the sum of the three credits theretofore entered on the respective accounts, was credited to the trustee account each month. This method was continued until the several transactions were completed on February 28, 1922. In order to care for the liability created by the resolution, the company charged the $1,000 to operating expenses each month during the five years. Those amounts were taken and allowed as deductions in the company's income tax returns.
On February 28, 1918, journal entries were made on the books of the company, crediting treasury stock with $12,000 and charging the account of petitioner with $4,000.On April 30, 1919, petitioner's account was charged with $4,000, and the account of the trustee credited with it. At the same time, the trustee's account was charged with that amount, and the capital stock credited with it. On February 28 of each of the years 1920, 1921, and 1922, the account of the trustee was charged with $12,000, the sum of the accounts for the three employees, and the capital stock account was credited with $12,000. On each of the years 1918 to 1922, inclusive, three certificates for 40 shares each were issued and delivered by the company to the trustee for the three respective accounts. Dividends on the stock held by the trustee were either paid to the two Olsons and Bailey or were credited to their accounts and drawn by them at their pleasure.
On or about March 1, 1922, the original stock certificates which had been issued to the trustee were surrendered and a new stock certificate for 200 shares was issued to petitioner. This stock he included in his income tax return for that year at its par value. The respondent increased that amount to $80,000 and asserted the deficiency in controversy.
On petitioner's appeal to the Board, the action of respondent was sustained. The Board in its findings which were promulgated on November 10, 1931, stated that the fair market value of the stock was $250 a share at the time of the transfer to petitioner on March 1, 1922. In the written opinion of the Board which accompanied those findings, however, the market value was stated to be $400, and that value was used in the Board's computation of the deficiency on December 28, 1931. On December 22, 1932, respondent filed in this court a certified copy of an order of the Board, as of December 12, 1932, correcting an error in the findings by ordering the figures and words "$250 per share" deleted and substituting therefor the figures and words "$400 per share." On January 23, 1933, respondent filed a written motion in this court to the effect that the Board's order of December 12, 1932, be incorporated in this record, and that it should be heard at the time the cause was argued on the merits. The motion was presented to this court by the parties at that time.
It is first contended by petitioner that since the Board had definitely found that the stock at the time of the transfer had a fair market value of $250 per share, it was error for it to undertake, in its opinion, to deduce from the evidence that it had a fair market value of $400 per share at that time, and likewise error for it to change its original findings by the order of December 12, 1932. Petitioner therefore argues that the order should not be incorporated in this record, and respondent's motion should be denied.
In Lincoln National Bank v. Perry, 66 F. 887, the Circuit Court of Appeals in discussing the jurisdiction of the trial court to correct the ...