805 Opinion of the Court man case. We say this because the statute, section 1001 (b), expressly states that the amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property received. We think as did the court in Marshman, supra, that the measurement of gain cannot be the fair market value of the property transferred. We also believe, as did the court in Marshman, that the measure of the value of the wife's right to maintenance and support was dependent upon so many uncertain factors that neither the taxpayer nor a revenue officer could do more than guess at it. Furthermore, to say that the fair market value of the property received is the same as the fair market value of the property given up, is the use of a formula different from the well-established formula for determining fair market value. Fair market value is the price at which property would change hands between a willing seller and a willing buyer, neither being under any compulsion to buy or sell. Again we agree with the court in the Marshman case that a transaction between a husband and a wife made under the emotion, tension and practical necessities involved in a divorce proceeding does not comply with this rule. Under the evidence of this case, like Marshman, many demands were made, many concessions were made, and under these circumstances values are lost sight of. This is especially true under the circumstances of this case wherein the husband even became ill because of the tensions resulting from the marital troubles. So it is reasonable to say that in some measure the husband was willing to pay at least some amount in order to have the marriage terminated. In these circumstances, the value of what was given up is no criterion of the fair market value of the "property" received. For the above reasons, we cannot agree with the ruling in the Mesta case that the fair market value of the release by a wife of her alimony and dower rights against her husband and his estate is properly determined by ascertaining and giving to it the fair market value of the property which she received from her husband. If the "property" received by Davis had no fair market value, or if none has been shown, it may be economic gain but Findings of Fact 152 Ct. Cl. it is not taxable gain by reason of the express provision of section 1001 (b). Champlin v. Commissioner, 71 F. 2d 23, 29. Therefore, we believe that T. C. Davis did not realize taxable gain by virtue of the 1955 transfer of stock pursuant to the property settlement agreement. Consequently, plaintiff is entitled to recover the amount paid pursuant to the inclusion of capital gain in his 1955 tax, in addition to the amount paid by reason of the inclusion of attorney's fees paid his attorney for tax advice. The exact amount of recovery will be determined pursuant to Rule 38 (c). It is so ordered. DURFEE, Judge; MADDEN, Judge; WHITAKER, Judge; and JONES, Chief Judge, concur. FINDINGS OF FACT The court, having considered the evidence, the report of Trial Commissioner Roald A. Hogenson, and the briefs and argument of counsel, makes findings of fact as follows: 1. Plaintiffs are citizens of the United States and residents of the State of Delaware. At the end of the calendar year 1955, they were husband and wife. 2. Plaintiff, Thomas Crawley Davis, had been previously married to Alice M. Davis, such marriage having existed from March 1, 1941, to January 5, 1955. On the latter date, Alice M. Davis, hereinafter referred to as Mrs. Davis, was granted an absolute and final decree of divorce from Mr. Davis upon the stated ground of "extreme cruelty, mental in nature," by the Second Judicial District Court of the State of Nevada. The separation and property settlement agreement of the parties, hereinafter mentioned in these findings, was approved by the Nevada court and incorporated by reference in its decree which, by its terms, ordered and directed the parties to comply with and to execute the terms and conditions of the agreement. Both parties were represented at the proceedings by Nevada attorneys who had not participated in any way in the preparation and execution of the agreement. Mrs. Davis appeared in person at the trial, but Mr. Davis did not personally participate. 805 Findings of Fact 3. Since 1934, Mr. Davis has been associated with E. I. du Pont de Nemours & Company, hereinafter referred to as du Pont or the company, in various capacities as an employee, officer, director and stockholder. His employment record with du Pont from November 16, 1934, to the date of the trial of this case on April 30, 1959, was as follows: 11-16-34 to 11-30-41 Manager, Tax Division, Treas- 12-1--41 to 8-26-44 Assistant Comptroller, Treasurer's 5-20-46 to 1-18-48 Assistant Treasurer, Treasurer's First Assistant Treasurer, Treas 1-19-48 to 12-20-53 Treasurer of the company 12-21-53 to 4-30-59 Member, Board of Directors, Member, Executive Committee, Vice President 11-1-54 to 4-30-59 Member, Finance Committee 4. From 1902 to the present time, du Pont has had a policy and practice of granting bonuses to its officers and employees. Prior to 1943, such bonuses were awarded in the form of du Pont stock. Due to the impact of the Federal withholding tax on incomes, such bonus awards were paid entirely in cash from 1943 to 1946. Beginning in 1947, such bonuses were paid partly in du Pont stock and partly in cash. One of the primary purposes of the company in awarding bonuses in the form of stock was to tie the bonus awardees to the company as stockholders and thus intensify their interest in the company's business. It was generally known that the company's top officials expected bonus awardees to retain their du Pont stock, the recognized exceptions being in cases of necessity to sell bonus stock to pay income taxes or to purchase a suitable home. 5. Prior to the annual meeting of the du Pont stockholders, the secretary of the company each year prepares an analysis of the holdings and dispositions of stock by executives of the company. The president, vice presidents, and directors are and were expected to explain any substantial disposition of their stock. Proxy statements issued by du Pont to its stockholders prior to each annual meeting show the holdings of du Pont Findings of Fact 152 Ct. Cl. stock by those persons nominated by the du Pont management for election or reelection by the stockholders to the company's board of directors. 6. During November 1953, Mr. Davis was advised by the president and by the chairman of the board of du Pont that he was being considered for election as a director, vice president and member of the executive committee of the company. At that time Mr. Davis had 2,842 shares of du Pont common stock registered in his name. Effective December 21, 1953, Mr Davis was elected by the board of directors as a director, vice president, and member of the executive committee of du Pont. As a director, Mr. Davis was subject to reelection by the stockholders at the succeeding annual meetings in April of each year. Mr. Davis has continued to hold such offices up to the present time. Since November 1, 1954, Mr. Davis has also been a member of the finance committee of the company. 7. The changes in the du Pont stock holdings of Mr. Davis from February 28, 1953, through 1958, were as follows: The disposition of 200 shares on September 1, 1953, 500 shares on March 21, 1955, and 500 shares on March 27, 1956, were to Mrs. Davis, as hereinafter related in these findings. The evidence indicates that the other dispositions were in the main for the purpose of paying Federal income taxes, and meeting the cash payments required by the separation and property settlement agreement. 805 Findings of Fact All of Mr. Davis' du Pont stock holdings were acquired by him through bonus awards by the company. 8. The income of Mr. Davis for the years 1949 through 1953 was as follows: 9. For the calendar years 1954 and 1955, Mr. Davis' adjusted gross income amounted to the respective sums of $264,984.69 and $317,865.16, of which the following represented payments from du Pont: 10. Mr. Davis' net worth statement as of July 1, 1954, was as follows: Cash in bank-Wilmington Trust Co------ Registered in his name--‒‒‒‒‒ 3, 216 shares unearned bonus- Remainder (including 100 802 shares 2, 414 shares @ $134.25 324, 079 Insurance policies having cash surrender value: 5, 000 5, 000 21, 717 17,493 16, 407 76,000 |