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IN RE FURST

March 31, 1966

In the Matter of Julius Furst, Debtor

Croake, District Judge.


The opinion of the court was delivered by: CROAKE

CROAKE, District Judge.

This is a petition by the Government to review the order of the Hon. Edward J. Ryan, Referee in Bankruptcy, filed April 19, 1965, expunging an item of excise taxes for $35,000 from the proof of claim of the United States herein, and upon such review, to vacate and reverse the order and dismiss the objections raised by the debtor.

 The controversy involves the excise tax consequences of the auction sale by the Parke-Bernet Galleries, Inc. of a diamond necklace known as the Rovensky Necklace in January of 1957. The provisions of law relevant to such consequences are set out in the margin. *fn1"

 The facts as found by the Referee in his memorandum decision are as follows:

 
"Julius Furst, the debtor herein, had been engaged in the jewelry business for about twenty-seven years. Prior to the date of the auction sale, January 23, 1957, Mr. Furst had known Louis A. Green and Mrs. Green and had sold to them some jewelry. At Mr. Green's request, Mr. Furst appraised the Rovensky Necklace prior to its sale. He gave an opinion as an expert that for resale purposes the necklace was worth at least $425,000.
 
"At the time of the sale, Messrs. Green and Furst sat together and Louis Green made the successful bid of $385,000. In accordance with a prior arrangement made with Julius Furst, Mr. Green caused Parke-Bernet Galleries, Inc. to treat Julius Furst as the successful bidder. It appears that the Galleries had similarly accommodated Mr. Green by 'transferring' sales from one name to another on a prior occasion.
 
"As a result of this arrangement, the debtor enjoyed substantial publicity as the purchaser of the Rovensky Necklace. In addition, he was given a limited agency to solicit purchasers of the gems. Mr. Furst was put in funds for the purchase of the Rovensky Necklace through Mr. Green. A corporation, C.W.S. Inc., had been set up to hold ultimate title to the Rovensky Necklace for the benefit of Mr. Green's children, Sedgwick W. Green and Cynthia Green Colin.
 
"A retailer's exemption certificate dated '1950', signed by Julius Furst, the debtor, was in the Parke-Bernet Galleries, Inc. files at the time of the sale. In 1959, C.W.S. Inc. had filed with Parke-Bernet Galleries, Inc. a retailer's exemption certificate."

 In the proceedings before the Referee, the contentions of the Government were essentially twofold; that is, that Furst purchased the necklace at the auction as a principal and then resold to Green or the corporation for the same sum, the claim against Furst being predicated upon the latter sale; or, in the alternative, that by reason of his conduct in the situation, Furst is estopped to deny his sale of the necklace to Green or the corporation. As to the first argument, the Referee found that Furst did not purchase the necklace in his own right, but rather as an agent of the purchaser. As to the second, it was found that:

 
"The agent of the United States investigating the taxability of the sale had been informed of the facts of the transaction in time to collect the tax from the seller but he failed to do so." Finding of Fact # 15.

 The Referee then concluded that:

 
"No acts or conduct of the debtor in possession misled Agent Keaveny in ascertaining the taxability of the transaction; accordingly no estoppel arises to preclude the debtor in possession from showing the true state of facts." Conclusion of Law # 4.

 Upon the instant petition, the Government directs attention to the question of estoppel. *fn2"

 In Robinson v. Commissioner of Internal Revenue, 100 F.2d 847 (6th Cir. 1939), cert. den. 308 U.S. 567, 60 S. Ct. 81, 84 L. Ed. 476 (1940), the court spoke as ...


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