Farid-Es-Sultaneh v. Commissioner

160 F.2d 812 (2nd Cir. 1947)


P filed taxes in 1938 and reported that she had sold 12,000 shares of SS Kresge Company at varying prices per share for the total sum of $230,802.36. This total sum was in excess of costs. In 1923, P was unmarried and SS Kresge was married. They were contemplating their future together, and Kresge gave to P 700 shares of the common stock of SS Kresge Company that had a fair market value of $290 per share. Kresge was eventually divorced in 1924 and two weeks later delivered another 1800 shares of commons stock to P. In April 1924 an antenuptial agreement was executed, and P acknowledged the gifts of stock as an antenuptial settlement that was made in consideration of the agreement that they marry and for her to release all dower rights and any rights for support. They were married and continued in that state until 1928 when a final decree of absolute divorce was granted. The stock had a fair market value of $315 per share on April 24, 1924, and $330 per share on May 6, 1924, when it was transferred to her on the books of the corporation. Based on dividends and stock splits her adjusted basis for the stock she sold in 1938 was $10.66 per 2/3 share. Kresge's adjusted basis at the time of his acquisition was $0.159091 per share. When they were married, Kresge was worth about $375,000,000. The IRS used the basis of the donor to determine the taxes owed as it determined the shares to be a gift. P appealed this ruling arguing that there was consideration and as such there was no gift.