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Teaford v. Commissioner of Internal Revenue

June 7, 1957

JOHN K. TEAFORD ET AL., PETITIONERS-APPELLANTS,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT-APPELLEE.



Author: Finnegan

Before DUFFY, Chief Judge, and MAJOR and FINNEGAN, Circuit Judges.

FINNEGAN, Circuit Judge.

This appeal presents the question, cutting across five cases heard and consolidated by the tax court, of when a sale transaction is considered consummated for tax purposes. Holding the sale of the partnership interests involved not to have been closed in 1943, the tax court found adversely to appellants on their several petitions tendering issues based on deficiencies and overpayments in income and victory tax for the calendar years 1942, 1943, 1944 and 1945.

Some stipulated facts, parol and documentary evidence introduced during the tax court proceedings, comprise the record and our version of the salient facts is drawn from those sources and the tax court's memorandum decision, John K. Teaford, et al. v. Commissioner, 14 T.C.M. 1052, CCH Dec. 21, 251(M) T.C. Memo. 1955-265. All of the agreements mentioned by the tax court and ourselves are part of the record in this appeal.

John K. Teaford, Seleen Teaford, Trustees of the Joan Kay Teaford Irrevocable Trust, and Seleen Teaford, Trustee of the Shirley Lee Teaford Irrevocable Trust, entered into a partnership agreement on January 2, 1943 with Danches Brothers Company, a partnership, Abe Danches, Robert E. Teaford, Sara K. Tibbets, Wealthy Westfall, Christa M. Stentzel and Cyril E. Teaford; among other things this agreement provided that John K. Teaford would contribute $84,200.88 and would receive or bear 15% of the profits or losses of the partnership; and that Seleen Teaford, Trustee of the Joan Kay Teaford Trust would contribute $28,066.96 and would receive or bear 5% of the profits or losses of the partnership; and that Seleen Teaford, Trustee of the Shirley Lee Teaford Trust would contribute $28,066.96 and would receive or bear 5% of the profits or losses of the partnership.

That partnership continued on under the partnership agreement and on August 1, 1943, John K. Teaford conveyed by deed of gift two-thirds of his interest in the partnership in the following manner:

To Joan K. Teaford Irrevocable Trust No. 2, 31/3% interest in the Teaford, Danches and Company partnership;

To Shirley Lee Teaford Irrevocable Trust No. 2, 31/3% interest in the Teaford, Danches and Company partnership;

To Seleen Teaford Trust, 31/3% interest in the Teaford, Danches and Company partnership.

This left John K. Teaford with a 5% interest in the Teaford, Danches and Company partnership, and the partnership continued on under the same operation as it had in the agreement dated January 2, 1943.

On November 6, 1943, all of the partners in the Teaford, Danches and Company entered into a memorandum agreement for the "sale" of the interest owned by John K. Teaford, Robert E. Teaford, C. E. Teaford, Sara Tibbets, Wealthy Westfall, Christa Stentzel, Shirley Lee Teaford Irrevocable Trust, Shirley Lee Teaford Irrevocable Trust No. 2, Joan K. Teaford Irrevocable Trust, Joan K. Teaford Irrevocable Trust No. 2, and Seleen Teaford Trust to Abe Danches, Ralph Danches, George Danches, Ethel Danches Weston, and Danches Brothers Company.

When the document dated November 6, 1943, was signed, Teaford, Danches and Company, owed $4,985,051.85 to the First National Bank in St. Louis. Under direct examination John K. Teaford related that Bank's attitude and the subsequent critical events.

"I think possibly even the following day, but within a matter of a very few days following this sale, Mr. Danches and myself went to the First National Bank in St. Louis, where we were very heavy borrowers, and where I kept a constant contact daily, and sat with officers of that institution and explained our action. And in fact, presented a copy, or the original of the agreement in which we had entered to effect this sale and purchase. The officers of the bank were quite alarmed at this situation because, first of all, they had depended upon me almost entirely to manage things in this company to their satisfaction, and I feel correct in saying that they had depended upon me more than anyone else for the repayment of the loans.

"So their first step was to examine the memorandum of agreement to which we had entered, and their Legal Department called us back down to the bank very soon thereafter and explained to us that they just would not permit us to take the steps that seemed to be anticipated in this agreement because it, in their opinion, put us in violation of a very large loan agreement under which we were operating with the bank, or the opinion that we were also in violation of ...


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