Kessler v. United States‪.‬

This is an appeal by the government from a judgment for the plaintiff in a suit brought in the District Court for the Eastern District of Pennsylvania for the recovery of income taxes alleged to have been erroneously assessed and collected. The plaintiff had acquired a 5% interest in the partnership of N. W. Ayer & Son, an advertising agency, by purchase on January 1, 1920. Later he acquired additional interests not here material. On April 29, 1929 N. W. Ayer & Son, Inc., was formed and received all the assets formerly held by the partnership. All but a very small portion of these assets had been acquired by the partnership within two or three years prior thereto. The plaintiff received out of the total issue of corporate stock a number of shares proportionate to his interest in the partnership. In 1934 he sold these shares of stock at a gain. In his income tax return for that year the plaintiff returned 40% of the capital gain from the sale as taxable net income and paid the tax thereon. Thereafter he filed a claim for the refund, inter alia, of so much of the tax as would not have been payable if only 30% of the gain from the sale of the stock representing his original 5% interest had been included as taxable net income. The refund was refused and the plaintiff brought the present suit to recover the amount claimed.