author: Leech :

text:
    Dorothy Forbes, Petitioner, v. Commissioner of Internal Revenue, Respondent. Mary B. Forbes, Petitioner, v. Commissioner of Internal Revenue, Respondent. Allan Forbes, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 71582-71584.
    Promulgated February 26, 1935.

      H. J. Gerrity, Esq., and Frank A. Lynch, Esq., for petitioners.

      J. J. ’Willett, Esq., and P. S. Grewe, Esq., for the respondent.
   opinion.

Leech :

These consolidated proceedings seek redetermination of income tax deficiencies asserted for the calendar year 1930 in the amounts of $8,038.34 against Dorothy Forbes, $12,834.10 against Mary B. Forbes, and $704.19 against Allan Forbes.

The sole issue is the date of acquisition of certain securities acquired under the provisions of a certain deed of trust, for the purpose of ascertaining the proper basis to be used in determining the gain derived or the loss sustained upon a sale of such securities in 1930. The proceedings have been submitted upon the pleadings and a stipulation of facts.

The petitioners, residents of Massachusetts, are the children of Alice Bowditch Forbes, who on May 8,1920, executed a deed of trust which is included herein by reference. The pertinent provisions of the deed of trust are as follows:

I. This trust is to last for ten years from the date of this instrument, during which time the trustees shall manage the property and distribute the income as herein directed, and at the end of ten years, shall distribute the principal to and among such persons as are then entitled to the income, subject to the provisions hereinbelow stated as to the surviving husbands or wives of any of my children who may die before the termination of the trust. * * *
II. The income of the trust fund hereby created shall be divided equally, at least as often as semiannually, among my three children, — Allan Forbes, Mary Bowditch Forbes and Dorothy Forbes, — and should any of them die leaving issue before the termination of the trust, the income of the parent’s share shall be divided among such issue taking by the shares until such termination, and should any of my said children die without leaving issue, or should such issue become extinct, before the termination of the trust, the interest of such children or issue in the trust both as to income and principal shall merge in and become part of the trust for the benefit of the other beneficiaries hereunder. Provided, however, that should any one of my said three children die before the termination of the trust leaving a husband or wife Surviving, such surviving husband or wife shall be entitled, in his or her own right, to one-half the income of such child’s share until the termination of the trust and the other half shall be distributed among my children or issue as herein provided; and should such husband or wife be living at the termination of the trust, he or she shall he entitled in distribution to one-third of the principal of such child’s share, and the remaining two-thirds shall be distributed among my children or issue as herein provided. In case any such husband or wife of a deceased child should die before the termination of the trust, their interest therein both as to income and principal shall cease forthwith.

Pursuant to its provisions the trust terminated on May 8, 1930, at which time there was distributed to each of petitioners one third of the corpus of the trust. During 1930 each of petitioners sold some of the securities received upon such distribution. The parties to this proceeding are in agreement as to the securities sold and amounts received therefor by each petitioner.

In, filing their respective income tax returns for 1930, petitioners computed gain or loss on such sales by using as a basis, the market value of such securities on May 8, 1930. Petitioners contend that upon the execution of the deed of trust in 1920, each took only a contingent interest in the corpus of the trust and that their respective interests did not vest until the termination of the trust on May 8, 1930, which was the date of their acquisition of the corpus of the trust.

Respondent determined that each of petitioners acquired a vested remainder interest in the corpus of the trust on May 8, 1920.. Accordingly, pursuant to section 113 (a) (4) of the Revenue Act of 1928, he used as the basis for computing gain or loss, the market value of the securities on May 8, 1920, or, the cost thereof wherever securities were purchased by the trustees. Such determination resulted in the deficiencies in controversy.

There is no dispute as to the correctness of the basic figures used in the respective computations of the petitioners and the respondent. It is stipulated that if, as a matter of law, respondent used the proper basis, the asserted deficiencies are correct and, further, that if, as a matter of law, the petitioners used the proper basis, their tax returns for 1930 are correct and no deficiencies are due from any of them for that year.

The sole issue, the date of acquisition, involves the question of whether, under the deed of trust, petitioners took a vested or a contingent remainder interest in the corpus of the trust on May 8, 1920. In determining this question of property rights, we are bound by the laws of Massachusetts, in which state the trust was created and administered and in which the property was situated. Spindle v. Shreve, 111 U. S. 542; Poe v. Seaborn, 282 U. S. 101; Isabel Richardson Molter, 27 B. T. A. 442; affd., 69 Fed. (2d) 7.

Under the Massachusetts rule, where the estate in remainder is limited to take effect either to an uncertain person or upon the happening of an uncertain event, such estate is contingent and no present right or estate passes. The uncertainty of the right to enjoyment makes the remainder interest contingent. A vested remainder is a present right or estate which passes instanter to a certain and definite person m esse, although that remainder is to be enjoyed only in futwro after the particular precedent estate terminates. The fixed right to the remainder makes it vested, although it may be uncertain whether it will ever take effect in possession and enjoyment. Colby v. Duncan, 139 Mass. 398; 1 N. E. 744; Coveny v. McLaughlin, 148 Mass. 576; 20 N. E. 165; Cushman v. Arnold, 185 Mass. 165; 70 N. E. 43; Ball v. Holland, 189 Mass. 369; 75 N. E. 713; Gray v. Whittemore, 192 Mass. 367; 78 N. E. 422. If survivorship or other condition precedent, be incorporated into the description of the gift or the designation of the remainderman, such as to my children who may then be living, the remainder will be contingent and the vesting deferred. Colby v. Duncan, supra. The settled rule of construction is that estates should always be regarded as vested immediately, unless an intention that they should be contingent has been manifested by very clear words. Bosworth v. Stockbridge, 189 Mass. 266; 75 N. E. 712; Minot v. Purrington, 190 Mass. 336; 77 N. E. 630. The deed of trust, here under consideration, must be construed to give effect to its intent as evidenced by the language used therein. Simonds v. Simonds, 199 Mass. 552; 85 N. E. 860; Crapo v. Price, 190 Mass. 317; 76 N. E. 1043.

After directing an equal distribution of the trust’s income to Allan Forbes, Mary Bowditch Forbes, and Dorothy Forbes, for a period of ten years, or to their issue or others in the event of their death prior to the expiration of the ten-year period, the deed provided that the trustees “ shall distribute the principal to and among such persons as are then entitled to the income.” The use of the adverb “ then ” must be accompanied by words of survivorship to make a remainder interest contingent, Gibbens v. Gibbens, 140 Mass. 102; 3 N. E. 1, so that the word “ then ” as here used refers only to the period when possession shall be taken. Ball v. Holland, supra. The persons who are to take the corpus of the trust in remainder are designated by the description of those who shall take the income during the existence of the particular estate. The grantor’s three children, petitioners herein, received, on May 8, 1920, a vested right to the income from the trust fund. There is nothing inconsistent in a gift of a particular estate and the remainder interest to the same persons, even though such remainder may never come into- their possession. Cushman v. Arnold, supra. There are no words of contingency deferring the vesting of the right to the remainder interest and there was nothing wanting on May 8, 1920, except the flight of time, to put the grantor’s three named children in possession. Each took a vested remainder interest on May 8, 1920, subject to divestiture in the event of death prior to the termination of the particular estate. Gibbens v. Gibbens, supra.

Accordingly, section 118 (a) (4) of the Revenue Act of 1928 is applicable. The basis for determining gain or loss is the fair market value of the securities comprising the corpus of the trust fund on May 8, 1920, the date of acquisition thereof by petitioners. The deficiencies are those determined by respondent.

Decision will be entered for the respondent.

       Sec. 113. (a) Property acquired after February 88, 1913. — The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall he the cost of such property; except that—
      (4) Gift oe transfee in tedst before January l, 1921. — If the property was acquired by gift or transfer in trust on or before December 81, 1920, the basis shall be the fair market value of such property at the time of such acquisition. * * *


source: Caselaw Access Project

author: Moréis:

license: Public Domain

text:
    Lillias Piper, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 52731.
    Promulgated February 26, 1935.

      W. H. Harris, Esq., for the petitioner.

      C. C. Holmes, Esq., for the respondent.
   OPINION.

Moréis:

Subdivisions (a) and (c) of section 202 of the Revenue Act of 1926 provide as follows:

(a) Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis provided in subdivision (a) or (b) of section 204, and the loss shall be the excess of such basis over the amount realized.
* ***** *
(e) 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 (other than money) received.

There are two questions for our determination, both of which arose from the sale of the petitioner’s 57th Street property in 1926 — (1) the effect upon the gain realized, if any, of the default of the First National Bank of Palm Beach and the resulting failure of the petitioner to receive the proceeds from the $20,000 check received by her in that transaction together with the further loss of an additional $4,000 deposited by her in that institution, and (2) whether the respondent correctly included the face value of the mortgage, $37,500, less 10 percent, received as a part of the sale price in that transaction, in the determination of taxable net income.

While the fortuitous closing of the First National Bank of Palm Beach resulted in some ultimate loss, whether deductible for tax purposes or not we need not decide, the fact remains that she first received $25,000 in cash or the equivalent which she deposited in an institution of her own choosing. Thus when these amounts were received she was the recipient of income irrespective of whether she later lost it or not. Under the statute all gross income must be included in the return, except that exempt from taxation, although losses arising within the same taxable year may exceed the amount thereof. Such losses must be claimed, as deductions under the applicable provisions of the statute. The petitioner makes no claim for a loss, as such, by- reason of the bank closing. She merely contends that she received no income within the taxable year by reason of the closing of said bank and her resulting inability to withdraw the cash deposited therein. If her position would be logically sustained the same rule would hold if she had used such funds to speculate in the stock market and had suffered a loss.

Neither are we able to conclude, as the petitioner would have us, that the $37,500 trust, which she received as part of the consideration in the sale of her property during the taxable year, had no fair market value. The petitioner was the only witness to testify in her behalf. Her sole testimony upon this subject was to the effect that she attempted, through her close personal friends, Williams and Leys, to sell the mortgage, but was unable to do so. Williams was a real estate and insurance broker and Leys a wholesale jeweler, and neither was shown to have any special qualification to dispose of the mortgage paper, nor, indeed, is there any showing of the extent to which they exerted themselves in so doing. The petitioner’s counsel makes much of the fact that the real purchasers did not sign the mortgage notes, but that Bertha Kahn, a dummy, did so. Though we are willing to concede, for the purpose of discussion, that the negotiability of the mortgage may have been affected by this fact, there is nothing to show, except that Bertha Kahn was a domestic servant, that she was not perfectly reliable and able to respond in payment thereof, even if the property had not been sufficient in value to cover the amount of the mortgage upon forced sale.

The record shows that the property sold in 1926 for $75,000, $62,500 greater than the first mortgage of $12,500. We can only infer, from the record, therefore, that the property was reasonably worth that amount in the absence of a showing that it was not. Therefore, there was ample security in the property itself to cover the $87,500 second mortgage at the time of sale. It is significant too, though not conclusive of fair market value within the taxable year, that the mortgage was finally paid in full. It is also significant to note that an $8,000 loan was arranged by Williams upon his and the petitioner’s personal endorsements, secured by this mortgage. If the petitioner had shown that Williams’ and her personal endorsements at the bank were in and of themselves good for such a loan at that institution, the fact that the mortgage was posted as collateral security therefor might be discounted. But we have no such proof and we may reasonably assume that the bank attributed a substantial value to the mortgage when the loan was made.

For the above and foregoing reasons we are of the opinion that the respondent’s determination must be approved.

Judgment will be entered for the respondent.


author: Matthews:

text:
    Charles B. Bretzfelder and Leon Tuchmann, as Executors of the Estate of Morris Weinstein, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 47189.
    Promulgated February 26, 1935.

      Oharles B. Bretzfelder, Esq., pro se.

      W. E. Davis, Esq., for the respondent.
   OPINION.

Matthews:

Respondent determined a deficiency in estate tax of $18,003.74. The decedent died on June 4,1925, and the Revenue Act of 1924 is therefore applicable. A number of errors were alleged in the petition, but all save three of these were adjusted by a stipulation between the parties and effect will be given thereto in the recom-putation. The three issues before us are:

(1) Whether petitioners are entitled to deductions for payments of amounts pledged by decedent during his lifetime to the Palestine Orphan Asylum and Jewish Maternity Hospital; (2) whether certain real property in New York was includable in decedent’s gross estate as being subject to administration expenses; and (3) whether petitioners are entitled to additional deductions for executors’ commissions which would have been allowable if certain land had been included in gross estate by the state Surrogate’s Court. The facts concerning these issues were stipulated.

1. The decedent during his lifetime pledged to the Palestine Orphan Asylum a sum in excess of $750, upon which a balance remained unpaid at his death of $750. The petitioners examined the merits of the contract and, concluding. upon the advice of counsel that it was legally enforceable, they paid the sum of $750 to the Palestine Orphan Asylum on March 10, 1926. This payment was included by them in their account rendered to the New York Surrogate’s Court and was approved by that court.

The decedent during his lifetime pledged to the Jewish Maternity Hospital the sum of $1,000, which remained unpaid at the time of his death, and the petitioners, upon advice of counsel that the pledge was legally enforceable, paid this sum to the hospital on December 3, 1927.

2. The decedent was the owner in fee at the time of his death of certain real estate located in the State of New York of the value of $340,000, as determined by respondent.

Decedent’s personal property had a value at his death of $1,429,-239.50 and his debts, funeral and administration expenses and bequests were determined to be $558,187.31.

3. Respondent determined the decedent’s gross estate for estate tax purposes to be $1,769,239.50. The gross estate as accounted for by the executors to the Surrogate’s Court of the State of New York, New York County, was $1,414,199.82. The gross estate for Federal estate tax purposes included real estate owned by the decedent and situate as follows: At 195 Sixth Avenue of the value of $35,000; at 2138 Madison Avenue of the value of $5,000; and at 86 West 119th Street of the value of $250,000; a total of $290,000. This sum, representing these three pieces of realty, was not included, in the gross estate as accounted for to the Surrogate’s Court.

There was allowed to the petitioners as executors on their accounting by the Surrogate’s Court the sum of $56,607.98 as commissions, which sum was computed upon the basis of an estate amounting to $1,414,199.82 of principal, as accounted for to the said court and which did not include the principal value of the real estate.

The value of the property included in the decedent’s gross estate as accounted for to the Surrogate’s Court, other than the real estate above mentioned, was increased by the respondent by the sum of $65,089.68. The petitioners, as executors, would accept additional commissions should any be allowed.

Respondent filed no brief.

1. The first question is whether the $750 pledged by the decedent to the Palestine Orphan Asylum as part of a larger sum, and paid after his death by his executors, the petitioners, is deductible; and whether the sum of $1,000 pledged by the decedent to the Jewish Maternity Hospital, and also paid after his death, is deductible.

The relevant provisions of the Revenue Act of 1924 are section 803 (a) (1) and (3). Both of these sums were paid by the petitioners on the advice of counsel as enforceable claims against the , estate. On this account, presumably, petitioners contend that they are deductible as “ claims.” We think they have misconceived the in-tendment of the statute which allows the deduction of claims only if they have been incurred “ for a fair consideration in money or money’s worth.” The intention of Congress here is made even more explicit by the substitution in the corresponding provision of the 1926 Revenue Act of the words, “ for an adequate and full consideration in money or money’s worth.” The statute does not say that claims shall be deductible if they are merely valid under local law. Congress obviously did not intend to make “ consideration ”, as it is understood at common law or by the law of any particular state, critical of exclusion, but to restrict deductions to “ claims ” representing bona fide financial transactions. Porter v. Commissioner, 60 Fed. (2d) 673; Latty v. Commissioner, 62 Fed. (2d) 952; Glaser v. Commissioner, 69 Fed. (2d) 254, affirming this Board in 27 B. T. A. 313; certiorari denied, 292 U. S. 654; rehearing denied October 8,1934.

We are of the opinion that these amounts paid to the asylum and hospital were not deductible as “claims” under subsection (1). It remains to inquire whether they are any the more deductible under subsection (3) as “ bequests, legacies, devises or transfers * * * for religious, charitable * * * purposes ”, within the meaning of section 303 (a) (3). We think not. The petitioners put in no evidence to show the character of the donee institutions, and the burden of proof rests on the petitioners. Porter v. Commissioner, supra; Estate of Edward Moore, 21 B. T. A. 279; Estate of Clinton H. Scovell, 30 B. T. A. 679. Moreover, there is grave doubt whether such promises as those here would come within the meaning of “ bequests, legacies, devises or transfers” as used in subsection (3). Glaser v. Commissioner, supra. These two deductions must therefore be denied.

2. The next question is whether under New York law the decedent’s real property in that state was “ subject to the payment of the charges against his estate and the expenses of its administration ”, within the meaning of section 302 (a), so as to bring it within his gross estate. The petitioners rely on Crooks v. Harrelson, 282 U. S. 55, and contend that the New York law brings them within the ambit of that rule.

At date of death of the decedent the New York Surrogate’s Court Act provided in part as follows:

Sec. 233 — The real property, or interest in real property, of which a decedent died seized, may bo disposed of as prescribed in this article * * *.
Sec. 234 — The real property specified in the preceding section may be mortgaged, leased, or sold for any or all of the following purposes:
1. For the payment of the debts of the decedent, including judgment or other liens, excepting mortgage liens, existing thereon at the time of his death.
2. For the payment of his funeral expenses. * * *
3. For the payment of the reasonable expenses of administration as allowed by the Surrogate.
4. For the payment of any transfer tax assessed upon the transfer of such property.
5. For the payment of any debt or legacy charged thereupon.
No mortgage, lease or sale shall be ordered for the purpose of any of the foregoing payments, if there be personal property applicable to the full payment and discharge thereof.

In tbe face of so unequivocal a statutory rule, the petitioners could scarcely contend that the decedent’s real property may not be sold to pay the expenses of his estate’s administration, and they do not do so; but they contend that the word's of the revenue act used in defining the gross estate “ subject to the * * * expenses of its administration ” do not apply unless the real property of the particular decedent would actually have to be sold, because of the insufficiency of his personalty, to pay the expenses of administration; and that here the facts admittedly show that the decedent’s personalty was ample to pay all such expenses. Assuming that the New York statute intends personalty to be used first for the payment of administration expenses, Kingsland v. Murray, 133 N. Y. 170, 174; it is equally clear that where the personalty is insufficient, realty may be sold to pay administration expenses. The courts have allowed the sale of a New York decedent’s land to pay administration expenses even when incurred in proceedings for the estate-in another state. In re Green's Estate, 180 Misc. 789; 226 N. Y. S. 436. So that the only question is, whether the priority of liability of the decedent’s personalty under New York law is sufficient to exclude his realty from the decedent’s gross estate for Federal tax purposes, if under the facts of the particular case it appears that administration expenses can in fact be fully satisfied out of the personalty.

We think such a reading of the revenue act is a perversion of its whole intendment. The revenue act uses the phrase, “ subject to ” which is unambiguous. The New York realty here was clearly “ subject to ” the payment of administration' expenses under New York law, and it is Immaterial that it might not actually be used for that purpose until after exhaustion of the decedent’s personalty. Cf. Estate of Edward M. Marble, 26 B. T. A. 26; affd., 64 Fed. (2d) 745. See also First Trust Co. of Omaha v. Allen, 60 Fed. (2d) 812.

We are of the opinion, therefore, that the decedent’s real property in New York was includable in his gross estate for Federal tax purposes.

3. Petitioner’s final contention, which appears to be made alternatively to the contention just considered, is that if the decedent’s New York realty is includable in his gross estate, commissions in respect of the administration of such property, by the petitioners and in addition to the executors’ commissions already allowed by the Surrogate’s Court, should be allowed as a deduction from the gross estate under section 303 (a)(1). The value of the corpus of the estate exclusive of the realty, the commissions thereon allowed the petitioners as executors by the Surrogate’s Court, the value of the realty in question, and the excess of value of the personalty as determined by the respondent over and above the value found by the Surrogate’s Court, have all been stipulated by the parties. No evidence was put in by the petitioners as to the amount of additional commissions allowable on the realty, but this statement is made in their brief:

Sec. 285 of the New York Surrogate’s Court Act authorizes the payment of commissions to be allowed on the settlement of the personal representatives’ accounting. That the petitioners herein will be allowed commissions on the real property in their representative capacity as trustees cannot be denied by the respondent. In fact, there is now pending in the New York Surrogate’s Court a proceeding for the settlement of the petitioner’s accounts as trustee and as part of said proceedings there will he allowed commissions upon the administration of the real property hereinbefore set forth.

Under section 303 (a) (1) deduction is allowed of “ administration expenses.” This includes executors’ commissions actually paid, or already determined under local law and to be paid in due course. There is no evidence to show that under New York law any additional commissions are allowable by the Surrogate’s Court to the petitioners in their capacity as executors. The statements in petitioners’ brief quoted above are not based on any facts in the record. Furthermore, the facts as stated do not show that petitioners, as executors, will be allowed any additional commissions.

The petitioners contend further, however, that the respondent should allow additional deductions for executors’ commissions computed by the rates of New York law and to the extent of the excess of the respondent’s valuation of the personalty over that fixed by the New York Surrogate’s Court. The statute allows the deduction of “ administration expenses.” This can properly mean only actual administration expenses, not imaginary-expenses which would have to be paid had the state Surrogate’s Court found a higher value than it did. Taxation is a practical matter and is concerned with actualities. The petitioners are entitled to deduct only so much as “ administration expenses ” as was actually paid out by them as such. This is not a case of additional administration expenses for which the executors are liable, and which they must pay in the future but have not yet paid. That situation is clearly distinguishable. Cf. Irving Bank-Columbia. Trust Co. et al., Executors, 16 B. T. A. 897; Arthur M. Lamport et al., Executors, 28 B. T. A. 862.

This claim must also be rejected.

Judgment will he entered wader Rule 50.


text:
    M. Jackson Crispin, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 60817.
    Promulgated February 26, 1935.

      Theodore L. Harrison, Esg., for the petitioner.

      Ralph E. Smith, Esg., for the respondent.
   OPINION.

Leech :

Our present inquiry is limited to the propriety of the respondent’s action in treating the sum of $388,637.85, actually received by petitioner from the corporation during the taxable year in excess of his then advances to the corporation, as dividends therefrom, and taxing it as such.

The authority for this action, if any exists, is contained in the Revenue Act of 1928, section 115 (a).

The respondent’s determination necessarily rests upon the fact that the corporation had sufficient “ earnings or profits accumulated after February 28, 1913,” to cover its questioned distributions when made to petitioner. This fact is not denied. Petitioner attacks that determination only upon the ground that the distributions supporting it were loans and not dividends.

The question presented is entirely one of fact. Petitioner has the burden of showing by evidence that the disputed distributions of the corporation from its earnings or profits accumulated since February 28, 1913, were loans and not taxable dividends within the quoted statute. It is argued for petitioner that the course of dealing between him and the corporation, evidenced by the manner in which their respective advances and withdrawals were recorded on the books of the company, particularly the advance by petitioner to the corporation of $196,027.79 in 1930, and the charge to petitioner’s open account of the premiums and advance interest on the loan on the policies of insurance taken out by petitioner in favor of the corporation, shows that the petitioner’s credit balance with the corporation in his open account with it, as of December 31,1929, and actually received from the corporation during that year, was a loan by the corporation to him, and not a dividend.

We are interested here directly in the taxable status of a particular receipt of money by petitioner from a corporation. That course of dealing, however reasonably proximate in time and circumstances to the receipt of the questioned money, is not the subject of our inquiry. It may be some evidence of the taxable character of the money in question. But it is not conclusive.

Whatever the weight of such evidence is in other circumstances, we think it is largely minimized here. Petitioner owned all the stock in the corporation. He did not move for a continuance of the hearing herein. Nor did he testify. The testimony indicates this was because of alleged financial difficulties preventing his return from his present European residence. However, there was a proper method for the introduction of his testimony under such circumstances. Bule 47, United States Board of Tax Appeals Pules of Practice. No such testimony appears in the record, nor was it offered.

Of course the sole ownership of the corporation stock by petitioner did not obscure that corporate identity. Planters Cotton Oil Co. v. Hopkins, 286 U. S. 332. True also, from the incorporation of petitioner’s company, at least until sometime in 1930, there was carried on the books of that corporation an open account with petitioner in which his advances and withdrawals were debited and credited. But, such book entries are never more than evidentiary. Doyle v. Mitchell Brothers Co., 247 U. S. 179. Their weight is diminished, if not entirely lost here. They stand alone, uncorroborated. And not only so, but, from the testimony of the secretary of the corporation under whose direction the books were kept, these accounts between petitioner and corporation are not disclosed to have reflected any other than the secretary’s own personal idea of the actual character of the present disputed transactions there recorded.

Against any weight which these book entries, and the unexplained insurance of the petitioner, for the benefit of the corporation, the assignment thereto of petitioner’s interest therein, may have, the record discloses facts and circumstances of impressive, and, we think, controlling significance.

The corporation, in which petitioner owned all the stock, had a capital of only $500. Any additional moneys or credit it needed, petitioner furnished. Likewise, funds were withdrawn by petitioner, apparently, when available, and he desired them. But its business was that of buying and selling securities — not loaning money. See First National Bank in Wichita v. Commissioner, 57 Fed. (2d) 7, affirming 19 B. T. A. 744; certiorari denied, 287 U. S. 636; Bank of California, National Association, 30 B. T. A. 556. In fact this record indicates no corporate authority to loan even to petitioner. No notes or other evidence of indebtedness covering the transactions between petitioner and the corporation were ever executed by either petitioner or the corporation. No interest was charged or paid. The fact that no dividends were formally declared is not necessary here to characterize the disputed receipts as dividends. Christopher v. Burnet, 55 Fed. (2d) 527, affirming 13 B. T. A. 729.

That case involved the same question we have here. The facts were substantially similar, except for the presence here of the policies of insurance and their assignment, the treatment on the corporation’s books of the premiums and loans thereon, and the payment by petitioner to the corporation in 1930. In our judgment, these circumstances do not justify a different conclusion in this case.

Any pertinent inferences to be drawn from the transactions connected with the insurance policies, depend upon the circumstances surrounding these transactions. Except for the bare facts of the issuance of such insurance, its assignment, and the corporation’s loans thereon, all of little, if any, probative value alone, the books are the only evidence of the character of those transactions as well as the advances of petitioner to the corporation in 1930. These book entries, under the circumstances disclosed, are of no more weight in resolving the present issue upon these additional facts, than they had in reflecting the other transactions.

If petitioner’s withdrawals from the corporation in 1929 to the extent of his credit balance were dividends, then his advances in 1930 were not payments upon nor security for loans. It is thus not inconsistent, as petitioner contends, to say that petitioner’s advances to the corporation in 1930 were loans to the corporation.

The cases cited by petitioner are distinguishable from the pending case upon their facts, converse presumptions or testimony corroborating book entries. They are not controlling here.

The respondent has determined that the payment of $388,637.85 in 1929 by Crispin Investing Co., a corporation having a capital of $500, to petitioner, its sole stockholder, which amount was in excess of petitioner’s advances to the corporation, was a dividend and taxable as such. Revenue Act of 1928, sec. 115 (a). In the face of the present record and the presumption of correctness attaching to respondent’s action, that determination will not be disturbed. Cf. E. T. Schuler, 29 B. T. A. 415; Lincoln National Bank, Executor, 23 B. T. A. 1304; affd., 63 Fed. (2d) 131; C. W. Murchison, 32 B. T. A. 32; Sam Weisberger, 29 B. T. A. 83.

Reviewed by the Board.

Judgment will be entered for the respondent.

       Sec. 115. (a) Definition of dividend. — The term “ dividend ” when used in this title (except in section 203 (a) (4) and section 208 (c) (1), relating to insurance companies) means any distribution made by a corporation to its shareholders, whether in money or in other property, out of its earnings or profits accumulated after February 28, 1913,


author: Van Fossan: Seawell,

text:
    A. M. Johnson, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 61345.
    Promulgated February 26, 1935.

      Maxwell A. O'Brien, Esq., and Pressly B. Baldridge, Esq., for the petitioner.

      J. R. Johnston, Esq., and T. M. Mather, Esq., for the respondent.
   OPINION.

Van Fossan:

The first issue for disposition is that of estoppel, raised by the respondent. The respondent, by amendment to his answer, alleges various facts as to petitioner’s conduct, specifically, that he originally reported all of said sum of $450,000 as his income; that in his petition as originally filed, he made no claim that the whole thereof was not taxable to him; that thereafter in an amended petition, and after the statute of limitations had run against the right o,f the Commissioner to assess additional sums against petitioner’s wife and sister, he, for the first time, asserted that he was not taxable on all of the sum of $450,000; wherefore, respondent claims petitioner is, and should be, estopped from now denying that said sum was all income to him for the year 1929.

We thus face the question whether the respondent’s proof established the estoppel so pleaded. It is elemental that to establish an estoppel there must be a misleading. The party claiming estoppel must have been misled into altering his position to his injury. Such facts must appear in the proof. Likewise, it is fundamental that the doctrine of equitable estoppel is essentially that of “ good conscience.” Therefore, where one with convenient opportunity to ascertain the real facts by the exercise of reasonable diligence neglects to do so, he will not be permitted to defeat another’s just rights by urging an equitable estoppel upon his having acted to his disadvantage or having failed to act to his advantage in reliance upon the other’s innocently mistaken representation regarding those .facts, such representation not having been made for the purpose of inducing him so to act.

Here we fail to find in the record any proof that petitioner made any intentional misrepresentation intended to cause the Commissioner to alter his position or to lull him into inaction. Moreover, the proof does not establish that respondent was without opportunity to ascertain the real facts before the statute of limitations had run against him. In fact, there is evidence showing that a complete disclosure of the respective holdings was made in reports to the Commissioner and in conferences with his representatives. Furthermore, the books reflected the ownership and were made available to the Commissioner’s agents. Again, we are uninformed of any change in the Commissioner’s conduct brought about by the alleged misrepresentation or of any injury caused him.- In short, we are of the opinion that the facts adduced fail to establish a basis for applying the doctrine of estoppel. See Northport Shores, Inc., 31 B. T. A. 1013.

The next question for decision is whether or not the $450,000 received as liquidated damages for the failure by Chapman Co. to carry out the contract of purchase of stock was ordinary income or was a capital gain.

The petitioner proceeds on the theory that the payments of $90,000 and $360,000 were made pursuant to the terms of a contract of sale of the company stock and, hence, related to the disposition, of a capital asset held for more than two years. The petitioner’s theory is based on a false premise. The payment was made not because of the disposition of a capital asset. It was a payment of liquidated damages for failure to complete a sale.

After the payment the petitioner had exactly the same capital assets as before the transaction was entered into. The entire transaction took place during the taxable year of 1929. Consequently, there is no basis for contending that the $450,000 income arose from the disposition of a capital asset. The income was ordinary income, taxable at the prescribed rates.

Having determined that the $450,000 received by the petitioner as liquidated damages constituted income taxable at ordinary rates, we must determine to whom such income is taxable. The respondent has held that the entire amount is taxable to the petitioner. In this we find him to be wrong. The evidence unmistakably shows that during the year 1929 and for many years before, the petitioner owned only 36.33+ percent of 90 percent (or 32.7 percent of the whole) of the outstanding capital stock of the National Life Insurance Co. of the United States of America. He had held the record title to the stock owned by his sister only in order to facilitate any possible transaction therein required to be made during her absence. His wife held the certificates to her own stock. He was the manager of the business affairs of all of them and had acted as such for many years. Though all dividends from the stock due to his sister and himself were paid to him, they were in amounts based on the stock owned by them and in items corresponding to the real stock ownership, issued in his name, but in blocks of certificates segregated according to actual ownership. The dividends from stock owned by petitioner’s wife were paid directly to her. The proof leaves no doubt as to the real ownership of the stock.

Similarly, we conclude that though the contract, the breach of which gave rise to the income in question, was negotiated by petitioner and signed in his own name, in this, as in other transactions, he was acting as a trustee or agent for his wife and sister, as well as for himself. That the stock was actually owned by the three persons in approximately equal amounts, though title to the sister’s stock stood in petitioner’s name, is clearly established. At all material times the stock belonging to petitioner’s wife stood in her own name and was so listed in the notice to the escrowee. That all business affairs of the three were handled by petitioner is likewise clear. The proceeds from the Chapman transaction, i. e., the $450,000, were credited to the joint account of petitioner and his wife and the separate account of the sister in proportion to their stock ownership, and subsequently invested in the rayon plant, the stock of which was later issued in amounts corresponding to the three several interests in the National Life Insurance Co.

The practice of the family group by which all business affairs of the family generally were carried on in petitioner’s name was a long established custom. The Chapman transaction was no exception. When he entered into the contract agreeing to sell the stock he was acting for and on behalf of his wife and sister as well as for himself. It follows that the $450,000 was received in this capacity and that only $163,500 of such sum was income to him.

Reviewed by the Board.

Decision will be entered under Rule 50.

Seawell,

dissenting: I disagree with the conclusion reached in the foregoing case and with at least one statement of fact appearing therein. This statement of fact, which is the basis of the opinion, is indicated by the underscoring in the two excerpts copied as follows: “ The proof leaves no doubt as to the real ownership of the stock. Similarly, we conclude that though the contract, the breach of which gave rise to the income in question, was negotiated by petitioner and signed in his own name, in this, as in other transactions, he was acting as a trustee or agent for his wife and sister, as well as for himself.” and “ when he [petitioner] entered into the contract [with P. W. Chapman & Co.] agreeing to sell the stock he was acting for and on behalf of his wife and sister as well as for himself.”

A thorough perusal of the record will disclose no word of evidence to sustain the statements underscored, and there was no stipulation of any fact. Neither the wife nor the sister was a witness and although the petitioner was sworn and examined in his own behalf, his counsel, purposely or otherwise, failed to ask him any question tending to elicit any such testimony and petitioner volunteered none. No writing or oral evidence was produced for the purpose of showing that the wife or sister ever attempted in any way to constitute petitioner a “ trustee ” or “ agent ” for either of them in this transaction or any transaction looking to the sale of this or any other stock owned by them or either of them; and there was no evidence that the wife or sister ever knew the contract “ which gave rise to the income in question ” was executed or contemplated until after the forfeiture and payment of the “ liquidated damages ” to petitioner.

Apparently the ownership of the stock placed with the escrow agent has been permitted to determine the ownership of the “ liquidated damages ”, although the contract was not for the sale of that particular stock, but any which petitioner might obtain.

Petitioner filed his income tax return, swearing that the $450,000 was his individual income (which was certainly not in conflict with the clear meaning and purport of the contract itself). The returns of petitioner’s wife and sister, made out at practically the same time and apparently under the supervision of petitioner, included no part of that sum as income to either of them. Ordinarily it would require strong evidence to overcome the plain, direct, and unequivocal statement under the three income tax returns and the subscribed oaths of rñe three interested persons. No mere conjecture arising from some remotely related circumstance would suffice.

Eespondent had a right to rely and did rely, he says, upon the tax returns. Petitioner himself so relied and filed his petition before the Board based on that reliance and continued to so rely until the statute of limitations had run in favor of the wife and sister, and then he changed front for his own advantage and to the disadvantage of the Commissioner. The Board and the courts have frequently said such change of attitude under such circumstances and with such a result will not be permitted.

Black agrees with this dissent.


author: Murdock:

text:
    Community Water Service Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Community Telephone Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 77560, 77568.
    Promulgated February 28, 1935.

      Edward K. Hanlon, Esq., and W. W. Spalding, Esq., for the petitioner in Docket No. 77560.

      Samuel H. Horne, Esq., for the petitioner in Docket No. 77568.

      W. Franh Gibbs, Esq., for the respondent.
   OPINION.

Murdock:

The above proceedings came on for hearing on the respondent’s motion “ to consolidate the above entitled appeals with the appeal of Wadsworth Securities Corporation, et al., Docket No. 77559.” The prayer of his motion is “ that these proceedings be consolidated with the appeal of Wadsworth Securities Corporation et al., Docket No. 77559, which appeal includes these two petitioners as parties, and that the answer of the respondent filed in proceedings Docket No. 77559 constitute an answer, full and complete, to the entire action.” There are at present three separate proceedings before the Board, each brought by a different taxpayer, each assigned a different docket number and for each of which a filing fee has been paid. The respondent desires to have all three proceedings consolidated into one at Docket No. 77559.

Action on such a motion must depend upon whether or not something beneficial is likely to result from the granting of it. Thus the moving party should advance some valid reason for the action. The Commissioner makes only one argument in support of his motion. He does not point out any advantage to be gained from the consolidation of these three proceedings into one. He merely argues that his own regulations require the granting of this motion. He refers to the following provisions of article 16 (b) of Regulations 75, as approved June 3, 1929:

The parent corporation shall be for all purposes, in respect of the tax for the taxable year for which a consolidated return is made or is required, the agent of each corporation which during any part of such year was a member of the affiliated group, duly authorized in the name of the parent to act for and represent each such corporation in all matters relating to such tax; the parent corporation shall be the sole agent for such corporations in such matters; and such corporations shall not have authority to act for or represent themselves in any such matter. For example * * * the parent will file petitions and conduct proceedings before the Board of Tax Appeals, and any such petition shall be considered as having also been filed by each such corporation * * *.

He says that these regulations were promulgated pursuant to authority conferred upon him in section 141 (b) of the Eevenue Act of 1928. He further states that both the Community Water Service Co. and the Community Telephone Co. were included as members of an affiliated group which filed a consolidated income tax return for the calendar year 1929 in the name of the parent corporation, the Wadsworth Securities Corporation; this return was audited and, on the basis of it, the Commissioner determined a deficiency in income tax; he mailed a notice of deficiency to the Wadsworth Securities Corporation; and that corporation filed a petition with the Board at Docket No. 77559.

There are a number of reasons why these proceedings should be kept separate and we can think of no advantage which would be gained by consolidating them. There was no appearance on behalf of the Wadsworth Securities Corporation at the hearing on the respondent’s motion, but counsel appeared at that timé for the community Water Service Co. and different counsel appeared at that time for the Community Telephone Co. These counsel stated that none of them in any way represents the Wadsworth Securities Corporation; the latter corporation is hopelessly insolvent; one of the petitioners was affiliated with that parent for a part of the year; the second petitioner was affiliated with that parent for a part of the year, but for no part of the year during which the first petitioner was a member of the affiliated group; and each of the petitioners desires to look after its own interests in these proceedings, which interests, they anticipate, will be different from the interest of the Wadsworth Securities Corporation. It is almost inevitable that the interest of each of these three corporations in the proceedings before the Board will differ materially from the interests of the other two. Thus it is important that each have its own counsel who will appear for it and take care of its particular interests. Yet, the parent corporation is not presently represented and may never be. It is to be noted that if the portions of the regulations of the Commissioner above referred to were to be given full force and effect, the counsel who actually appeared before the Board could not have been heard since the corporations which they represented were not the parent corporation of the affiliated group and, consequently, had no authority under those regulations to act for or represent themselves in any such matter.

The separateness of taxpayers, even though they are affiliated, is shown by the decision of the Supreme Court in Woolford Realty Co. v. Rose, 286 U. S. 319. Cf. Delaware & Hudson Co. v. Commissioner, 65 Fed. (2d) 292; certiorari denied, 290 U. S. 610. See also section 274 of the Revenue Act of 1926 in regard to a “ taxpayer proceeding before the Board. The orderly conduct of its proceedings and the effectiveness of its final judgment require that there be a separate proceeding at a separate docket number for each separate taxpayer who contests his tax liability before the Board. The Board consolidates proceedings for certain purposes if it is convinced that, all things considered, such consolidation is advisable, but here it is convinced that the consolidation sought by the Commissioner is not advisable.

Furthermore, it seems clear that the Commissioner, in portions of these regulations, has exceeded the authority conferred upon him by statute and has attempted to encroach upon and unwisely interfere with the statutory authority conferred upon the Board, although perhaps he did not realize they would have that effect. Full enforcement of the portions of the regulations above quoted would result in a material departure from and a modification of the established practice and procedure of the Board. The effect of the regulations is to prescribe rules of practice and procedure and to limit and define the manner in which parties may be represented before the Board. It was provided in section 907 (a) of the Revenue Act of 1924, as amended by section 1000 of the Revenue Act of 1926 and by section 601 of the Revenue Act of 1928, that the “ proceedings of the Board and its divisions shall be conducted in accordance with such rules of practice and procedure (other than rules of evidence) as the Board may prescribe * * The Board, having well in mind the problems presented to it, has prescribed rules of practice and procedure under which proceedings before it are to be conducted. It has provided that a proceeding shall be brought by and in the name of the person against whom the deficiency is determined by the Commissioner and the petition shall be verified by the petitioner. The consistent practice has been to require each separate taxpayer to file a separate petition for each notice of deficiency which has been, mailed to that taxpayer. Experience has demonstrated the wisdom of that practice. Each petition filed is assigned a separate docket number and a fee is imposed for the filing of each petition. See section 1000 of the Bevenue Act of 1926, amending section 904 of the Bevenue Act of 1924. All such matters are peculiarly within the province of the Board. Bankers Pocahontas Coal Co. v. Burnet, 287 U. S. 308; Commissioner v. Kerbaugh, 74 Fed. (2d) 749. The Commissioner is one of the parties in every proceeding before the Board. The other party is the petitioner, and, if he is a proper petitioner, he is the one who has received a notice of deficiency notifying him that the Commissioner has determined against him a deficiency in tax. If the Board were a court, clearly a party could not prescribe rules of procedure binding upon it. The Board is the tribunal to which these two adverse parties come for a decision of the questions on which they differ. Old Colony Trust Co. v. Commissioner, 279 U. S. 716; Commissioner v. Liberty Bank & Trust Co., 59 Fed. (2d) 320; Sandy Fox v. Commissioner, 75 Fed. (2d) 183. The Board performs judicial functions. Goldsmith v. Board, 270 U. S. 117; Blair v. Oesterlein Machine Co., 275 U. S. 220, 227; Uncasville Mfg. Co. v. Commissioner, 55 Fed. (2d) 893, 897; Underwood v. Commissioner, 56 Fed. (2d) 67, 73; Commissioner v. Liberty Bank & Trust Co., 59 Fed. (2d) 320, 323; American Woolen Co. v. White, 56 Fed. (2d) 716, 718; Bankers Reserve Life Co. v. United States, 44 Fed. (2d) 1000, 1003. It is an independent agency, made so by statute. Sec. 1000, Bevenue Act of 1926, amending sec. 900, Bevenue Act of 1924. Obviously the Commissioner may not prescribe rules of practice and procedure for proceedings before the Board, overturn the consistent rulings which have been adopted to obviate confusion and unnecessary difficulties in proceedings before the Board, and thus not only circumscribe his adversary in presenting his case to the Board, but indeed actually prevent such adversary from being heard. The present case demonstrates the confusion to which the enforcement of the Commissioner’s regulations would lead. The Commissioner has exceeded his powers in the promulgation of these portions of the regulations, and the Board will not be bound by them.

Thus the only reason advanced by the Commissioner why his motion should be granted is an insufficient reason, no valid reason for granting the motion occurs to the Board and good reasons for denying the motion are apparent. Consequently, the Commissioner’s motion is denied.

Beviewed by the Board.

       Sec. 141 (b). Regulations. — The Commissioner, with the approval of the Secretary, shall prescribe such regulations as he may deem necessary in order that the tax liability of an affiliated group of corporations making a consolidated return and of each corporation in the group, both during and after the period of affiliation, may be determined, computed, assessed, collected, and adjusted in such manner as clearly to reflect the income and to prevent avoidance of tax liability.


author: Black : VaN FossaN,

text:
    Perrine & Buckelew, Incorporated, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 64065.
    Promulgated February 28, 1935.

      H. B. Elder, Esq., and Osear Ferger, O. P. A., for the petitioner.

      G. R. Sher riff, Esq., and H. B. Linton, Esq., for the respondent.
   OPINION.

Black :

Did the respondent err in disallowing as a deduction from gross income the item of $9,967.10 ?

Petitioner in its brief argues That the so-called special common 'stock — Series A Certificates were not Certificates of stock in fact but were in effect certificates of a restricted indebtedness ” and further contends “ That the payments in controversy made to the holders of the Series A Certificates were not dividends but a consideration for forbearing to enforce a legal right.” Respondent contends that these contested payments were dividends paid to the holders of the corporation’s, special class A common stock.

Our problem is to determine whether the payments were dividends as defined in section 116 (a) of the Revenue Act of 1928, or deductions from gross income under either paragraph (a) or (b) of section 23 of the same act. These statutory provisions are set forth in the margin. Whether these payments are dividends or deductions as either expenses or interest depends upon whether the Per-rines received such payments in the capacity of shareholders or as creditors of the corporation.

The question whether certain payments made by other corporations were dividends or deductions from gross income within sections 115 and 23, respectively, of the Revenue Act of 1928, and similar provisions of other revenue acts, has often been the subject of controversy before the Board and the courts. We do not deem it necessary to discuss the numerous decisions dealing with the subject. Suffice it to say that in each of the cases to which we have been cited, the decision turned on the peculiar facts and the construction given to the particular document or documents there in question. We approach the problem here presented in the same way.

It is perfectly clear that prior to the reorganization of petitioner’s financial structure on December 30, 1924, the Perrine brothers were stockholders and not creditors of the petitioner. Except for the qualifying shares held by Malan and Wyckoff, Joseph and Samuel Perrine were the sole stockholders, owning six. sevenths and one seventh of the stock, respectively.

Upon the issue of the new shares referred to in our findings of fact, did the Perrines become creditors of the petitioner by reason of the receipt by them of the series A special common stock certificates? We think not. In his opening statement, counsel for petitioner said: “ It is admitted by the petitioner it called the certificates stock certificates, and treated them as such on its books.” Of course, it is well settled that the name given to an instrument is not conclusive evidence of its character. Leasehold Realty Co., 3 B. T. A. 1129; H. R. DeMilt Co., 7 B. T. A. 7. But it is equally well settled that the terms used and the treatment accorded to the instrument by its creator can not be lightly set aside. Kentucky River Coal Corporation, 3 B. T. A. 644; Bolinger-Franklin Lumber Co., 7 B. T. A. 402; Angelus Building & Investment Co., 20 B. T. A. 667; affd., 57 Fed. (2d) 133; certiorari denied, 286 U. S. 562.

In Gary v. Savings Union, 22 Wall. 38, the question was whether certain payments by a bank to certain of its depositors were dividends or interest. The question arose under an act of Congress passed in 1864 (13 Stat. L. 283), as amended in 1866 (14 Stat. L. 138), which provided that there should be levied and collected a tax of 5 percent on all dividends, with a proviso “ That the annual or semiannual interest allowed or paid to the depositors in savings banks or savings institutions shall not be. considered as dividends.” The entire opinion of Mr. Chief Justice Waite, holding the payments to be dividends, is as follows:

A distinction is expressly recognized in the act of Congress between interest and dividends, .and the Circuit Court decided that the payments to the depositors were for dividends. The question is whether this decision was correct.
We think it was. The depositors contracted not for a rate of interest to be paid upon their deposits; but for a share of the profits of the business in which their money was, by agreement, to be employed. It is true that the profits of the company were principally to be derived from interest upon loans made, but they were none the less on that account profits. The interest received for the loan of each deposit was not kept by itself, and paid to.the depositors after deducting a charge to cover expenses, but all was placed in a common fund, and when the net result of the business was ascertained, that was divided among the several contributors according to the value of their contributions. Such a division clearly produces a dividend according to the common understanding of that term. The parties themselves so understood it, for they gave it that name in the contracts, executed when the depositors made their deposits. They stipulated for the payment of dividends and not interest.

It is true that the holders of the series A certificates alone were to share in the profits of certain segregated assets belonging to the corporation, and, in case of liquidation, in the proceeds from the sale of the assets themselves. But we fail to see wherein this fact would make the holders thereof creditors of the corporation. The payments were not to be made until declared by petitioner’s board of directors, and were to be paid out of “ proceeds and profits received by said company by interest or otherwise from all bonds and mortgages, notes and accounts set aside and segregated ”, etc. Petitioner’s segregated assets were subject to the claims of its general creditors as much as were its remaining assets. These assets were kept in the business at the risk of the business. Each certificate of class A common stock specifically provided that it was a part of the issue of petitioner’s capital stock “ amounting in all to Seven Hundred Thousand Dollars ($700,000.00), par value, authorized by the Certificate of Incorporation of the company, as amended, dated December 30, 1924, and filed in the office of the Secretary of State of the State of New Jersey.” We are, therefore, of the opinion and so hold that such series A certificates were certificates of petitioner’s authorized capital stock and not, as petitioner contends, certificates of a restricted indebtedness.

We now turn to the document executed on December 31, 1928, shown in our findings of fact. Was it in effect a declaration by petitioner of a dividend in kind to the extent of $162,687.08? We think not. There was no resolution by petitioner’s board of directors to that effect. But what is more important perhaps, is the fact that no assignment of the assets mentioned in that document has ever been made. Petitioner continued to use the assets therein mentioned in its business. It did not recognize this amount of $162,687.08 as a liability on its books of account. With reference to the failure of the corporation to actually assign these assets of an agreed value of $162,687.08 to its .stockholders, the Perrines, at the time the agreement was entered into, petitioner’s witness, Jacob Wyckoff, testified as follows:

Q. Was there any conversation at that time as to when the actual assignment of these assets was to be made or any conversation in regard to the actual assignment?
A. Yes.
Q. What?
A. They were supposed to be assigned at that time.
Q. Well, why weren’t they?
A. Well, they weren’t assigned because we didn’t want to take them out of our place.
Q. Well, what happened. You didn’t want to take them out of your statement?
A. Then Mr. Perrine says — “ If you don’t do this, I should be compensated for it,” so we agreed to pay him the equivalent of 6 per cent on the' $162,000 until such time as the actual assignment was made.

Joseph M. Perrine testified to substantially the same effect. It seems to us that this oral agreement supplementing the written document of December 31, 1928, fell short of making the Perrines creditors of the corporation to the extent of $162,687.08.

It is well settled that the declaration of a dividend creates the relationship of debtor and creditor (United States v. Guinzburg, 278 Fed. 363), and where cash dividends declared are retained by agreement with the stockholders deferring payment until there, is sufficient working capital in the treasury of the corporation, the relationship is one of debtor and creditor and interest paid to the stockholders is deductible as interest (Southport Mill, Ltd. v. Commissioner, 26 Fed. (2d) 17). But, as has already been pointed out, we have in the instant case no declaration of a dividend in kind amounting to the sum of $162,687.08, and no satisfactory evidence to show that the- corporation became a debtor to its stockholders, the Perrines, for that amount. It seems to us that, giving full effect to the written agreement of December 31, 1928, and the oral testimony supplementary thereto, it simply shows that the Perrines agreed to remain series A common stockholders awhile longer, until such time as it would be convenient and expedient for the corporation to transfer to them the $162,687.08 in property in liquidation of their class A common stock, and in the meanwhile they should be paid dividends of 6 percent on $162,687.08. No showing is made that the $9,967.10 in issue in this proceeding was not paid out of earned profits of the corporation, and considering all the evidence we see no justification for treating the amount as anything other than a dividend. Nor can we treat the amount as a business expense incurred as petitioner contends, “as reasonable consideration for said stockholders’ forbearing to compel the taxpayer to redeem their stock in accordance with the resolution of the directors and the provisions of the certificate of incorporation.” Dividends, such as we hold the $9,967.10 here in question to be, are not deductible as business expenses.

At the most, tlie agreement of December 31, 1928, and the oral agreement supplementary thereto, gave the stockholders, the Per-rines, the right to demand that the corporation redeem their class A common stock by transferring to them the $162,687.08 property. This was apparently at the election of the Perrines. However, it has been held that a provision that stock is redeemable at the election of the stockholders upon notice does not create a debt. Finance & Investment Corporation v. Burnet, 57 Fed. (2d) 444.

Neither a provision for optional redemption within a period of years nor a subsequent contract will take a payment out of the class of dividends and cause it to be deductible. Elko Lamoille Power Co. v. Commissioner, 50 Fed. (2d) 595; Angelus Building & Investment Co. v. Commissioner, 57 Fed. (2d) 133.

The payments in issue here were not business expenses, and petitioner’s contention in that respect is denied. For reasons already stated, we sustain the Commissioner.

Reviewed by the Board.

Decision will be entered for the respondent.

Leech and TurNer dissent.

VaN FossaN,

dissenting: I am unable to concur in the conclusion of the majority. The question in the case is whether or not certain payments were deductible business expenses of the petitioner. I believe the case turns on the agreement of December 31, 1928, and the subsequent transactions. By this agreement, after reciting that the amounts were due, the petitioner agreed to assign listed assets aggregating the amount of the claim. For corporate credit reasons, the assignment was not made, but the petitioner thereupon collaterally agreed to pay 6 percent on the sum due until such assignment should be made. The payments of 6 percent so made during 1929 give rise to the present controversy. The petitioner deducted them as interest paid. The respondent held them to be dividends.

By the agreement of December 31, 1928, the amount owed by the corporation to the Perrines was fixed and it was agreed assets should be assigned in payment. There would seem to be little doubt that the Perrines could have compelled specific performance of this agreement. The subsequent or collateral agreement to pay 6 percent on the principal amount, so long as the petitioner withheld the assets and failed to make the agreed assignment was a new obligation. By it the petitioner agreed to pay for the privilege of retaining the assets. Whether this new relationship was a loan of the $162,687.08 or a loan of the assets, it is not necessary to decide, but it seems clear to me the payment of the 6 percent for the use thereof was a proper business expense. The agreement to pay was absolute and was not related to the earnings on the assets or stock. It is only by an artificial and strained construction that it could be so related to the series A stock as to hold it to be dividends.

Smith agrees with this dissent.

       SEC. 115. DISTRIBUTIONS BY CORPORATION.
      (a) Definition of dividend. — The term “ dividend ” when used in this title (except in section 203 (a)(4) and section 208 (c)(1), relating to insurance companies) means any distribution made by a corporation to its shareholders, whether in money or in other property, out of its earnings or profits accumulated after February 28, 1913.
      SEC. 23. DEDUCTIONS FROM GROSS INCOME.
      In computing net income there shall be allowed as deductions:
      (a) Bxpenses. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; * * *
      (b) Interests. — All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the united States issued after September 24, 1917, and originally subscribed by the taxpayer) the interest upon which is wholly exempt from taxation under this title.


author: McMahon :

text:
    James W. Singer, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 71420.
    Promulgated February 28, 1935.

      Henry H. Fwilh, Esq., for the petitioner.

      G. A. Bay, Esq., for the respondent.
   OPINION.

McMahon :

The respondent contends that the alleged sale and purchase herein were not bona fide; that, in fact, there was no sale or purchase, but, if the Board should find there was a sale, then, in substance, the petitioner was the purchaser of the stock instead of his wife; that consequently there was a reacquirement by him within 30 days of substantially identical property; and that, therefore, any loss resulting is not deductible under section 118 of the Revenue Act of 1928.

The petitioner testified that he did not'sell the stocks directly to his wife, but instructed the broker to sell them for his account and to buy the same number of shares of the same kind of stock for his wife’s account because the brokerage house had informed him that such was the proper procedure to establish a deductible loss; that his only purpose was “ not to evade taxes but to reduce the taxes and establish my loss ”; that he had no other purpose “ except we thought there was a chance, by holding the stock the stock would come back.”

Q. You say “ we thought holding the stock ”?
A. Well, my wife holding the stock.

In Mrs. Niels (Mellie) Esperson, Executrix, 13 B. T. A. 596, the Board stated:

* * * Since the transaction was made for the avowed' purpose of reducing taxation and apparently would not have been consummated otherwise at this time, every requirement of a sale must be met. * * * [Emphasis supplied.]

The petitioner testified that his wife happened to buy on the same date he sold “ Simply because I told her there was quite a loss in that stock and she urged me to hold the stock because she thought it would come back.”

The petitioner testified further that his wife—

* * * had funds that she had deposited with me back in, I think it was 1912 or 1913. She had on deposit with the Singer Brothers Cloak Company, which we can give you a memorandum of, and then she received money from her father’s estate and she received some Endicott-Johnson Shoe Company stock and then from time to time she received .^funds. She • received stock in the Bank of Commerce at one time, which we have records of. We can show you records of her having had stock in the Bank of Commerce, and she had United States Steel Company stock formerly.

Notwithstanding that he explicitly stated in. the return for 1930 that it was not a joint return, he further testified that the return for 1980 filed by him was, in fact, a joint return, and that his wife’s income was included therein, but he was unable to state how much of the income reported in the return was a part of his wife’s separate property except that she received $56 each year from her Endi-cott-Johnson stock.

The record does not disclose that the petitioner, in instructing the broker to buy for his wife’s account, was acting as her agent. The record merely discloses that she urged the petitioner to hold the stock. There is no evidence that petitioner’s wife intended to purchase the stock for herself, or that the stock was delivered to her as the purchaser and owner thereof. The petitioner testified that the 16 shares of Endicott-Johnson stock standing in the name of his wife, and all other shares in his wife’s name, were endorsed in blank by her. All of them were apparently kept, together with petitioner’s papers, in the safety deposit box of the Annette Realty Co. That she had access to such box is not controlling in view of the lack of any evidence showing that she ever exercised that right, took any independent action in the entire transaction, or exercised any dominion whatever over the stock purported to have been purchased by her. While she had some property, the record does not disclose even the approximate value thereof in 1930. However, the record does disclose that, except for the deposit made by petitioner to the joint account, she would not have been able to pay for the stock-The petitioner’s testimony discloses that the purported purchase by his wife was made o"ut of the joint checking account, but it does not appear that she personally signed the check made payable to Walker & Co., or any other check drawn on such account. The record discloses that petitioner delivered the stock to the broker to be sold and repurchased, and after the repurchase, it was merely endorsed by his wife and thus was under his control at all times.

This proceeding is controlled in principle by Joseph Blumenthal, 30 B. T. A. 125, and cases cited therein; and D. A. Belden, 30 B. T. A. 601. The Board held therein that purported sales under somewhat similar circumstances did not result in deductible losses under the revenue laws. See also W. E. Brochon, 30 B. T. A. 404.

In view of the conclusion which we have reached, it is unnecessary to consider any other contention of the respondent; and this disposes of the contentions urged by, the petitioner.

The,action of the respondent in disallowing the claimed loss of $13,163.91 is, therefore, approved.

Decision will be entered for the respondent.

       In the ease of any loss claimed to have been sustained in any sale or other disposition of shares of stock or securities where it appears that within thirty days before or after the date of such sale or other disposition the taxpayer has acquired (otherwise than by bequest or inheritance) or has entered into a contract or option to acquire substantially identical property, and the property so acquired is held by the taxpayer for any period after such sale or other disposition, no deduction for the loss shall be allowed under section 23 (e) (2) of this title; nor shall such deduction be allowed under section 23 (f) unless the claim is made by a corporation, a dealer in stocks or securities, and with respect to a transaction made in the ordinary course of its business. If such acquisition or the contract or option to acquire is to the extent of part only of substantially identical property, then only a proportionate part' of the loss shall be disallowed.


author: Turnee:

text:
    The Weber Flour Mills Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 60102.
    Promulgated February 28, 1935.

      Perry W. Shrader, Esq., for the petitioner.

      James K. Polk, Jr., Esq., for the respondent.
   OPINION.

Turnee:

The only question for determination is whether the Weber Flour Mills Co., which was incorporated August 7, 1924, has had a continuous existence as a definite and distinct taxable entity and is the “ taxpayer ” we now have before us as the petitioner in this proceeding. If so, the respondent concedes that the petitioner sustained a net loss in the operation of its business, which is deductible under the provisions of section 117 (b) of the Revenue Act of 1928 in determining its net income for the taxable year.

The respondent, in his determination, has attributed full force and effect to every event and happening which could in any way affect the existence of the Weber Flour Mills Co. as originally incorporated, and contends that by reason of the forfeiture of its charter in the manner prescribed by the Kansas statute, the predecessor corporation passed completely out of existence; that during the interval from the date of forfeiture, on December 13, 1926, to the date the petitioner received its charter, on May 18, 1928, the business, even though operated in the manner of a corporation, could have been nothing more than a trust or an association, and under the decision of the United States Supreme Court in Planters Cotton Oil Co. v. Hopkins, 286 U. S. 332, a net loss sustained by an association is not to be recognized, under section 117 (b), supra, as the net loss of a successor corporation, even though such successor corporation acquires the business and assets of the association without any change whatever. The respondent also cited Woolford Realty Co. v. Rose, 286 U. S. 319, and New Colonial Ice Co. v. Commissioner, 66 Fed. (2d) 480, since affirmed by the United States Supreme Court in 292 U. S. 435.

The petitioner has pointed out the distinctions between the facts in this case and the facts involved in Woolford Realty Co. v. Rose, supra, and New Colonial Ice Co. v. Commissioner, supra, and claims that, since there was no change in the business carried on by the predecessor corporation when taken over by the petitioner and the stockholders’ powers and the applicable state statutes remained the same, and inasmuch as the loss of its charter by the predecessor corporation was inadvertent and not by reason of any intention on the part of the corporation or its stockholders to make a change in the corporate organization or business, the net losses sustained in the years 1927 and 1928 should be treated as the net losses of the petitioner.

A corporation is a fictitious entity, dependent for existence upon the laws of the state of its origin, and we must examine the Kansas statutes to determine whether the Weber Flour Mills Co. that sustained the net loss is the Weber Flour Mills Co. now claiming the right to deduct such net lossi in computing its net income. Forfeiture of a corporate charter is provided for in section 70'6, chapter 17, Revised Statutes of Kansas, 1923, which reads in part as follows:

The failure of any .domestic corporation to file the annual statement ánd to pay the annual fee herein provided for within ninety days of the time for filing and paying the same shall, in addition to other penalties, work the forfeiture of the charter of such, corporation organized under the laws of this state and the charter board may at any time thereafter declare the charter of such corporation forfeited.

The Supreme Court of Kansas has construed the provision quoted in Four-S Razor Co. v. Guymon, 205 Pac. 635, and Young Construction Co. v. Dunne, 254 Pac. 323. In the earlier case the charter board had declared a forfeiture of the charter of the Four-S Razor Co. for failure to make the required report and pay the specified fees. It was insisted on behalf of the corporation that this failure on its part did not “ ipso facto work a forfeiture of its charter rights ”, but that these omissions were merely grounds for forfeiture and that the existence of such grounds did not terminate corporate life. The court said:

It is competent for the Legislature which provided for the creation of corporations to also provide that particular omissions or acts should operate to end their existence, and to make these provisions self-executing * * *. The plaintiff organized under the general laws of the state, and it accepted the privileges granted upon the conditions prescribed by the Legislature, one of which was that its existence might be terminated by the omissions mentioned. It owes its existence to the state, and the sovereign power that created it may prescribe the circumstances which will operate as a forfeiture of the granted rights. * * *
The language of the act clearly evinces the legislative intention to be that a forfeiture may be declared and enforced without resort to the courts. The act prescribes that certain omissions and defaults shall work a forfeiture, and for these the state charter board may declare the forfeiture. That board is thereby given authority to determine the existence of the grounds, and, if found to exist, to terminate the life of the corporation by a declaration of forfeiture.

Later, in Young Construction Co. v. Dunne, supra, the court was equally positive, and with reference to the question as to whether or not it was essential 'that a corporation receive notice of its delinquencies, it was said:

Plaintiff needed no more notice than the statute afforded. It is not necessary to cite authorities to support the doctrine that every one is presumed to Enow the law and to take notice of the provisions of a general act. Plaintiff was charged with notice of the statute quoted in relation to forfeiture of corporate charters, and was bound to know that if the fees were not paid and the annual report made within 90 days after the time for filing the same * * * the state charter board was authorized to declare the forfeiture at any time after that date.

Deferring to its decision in Four-S Razor Co. v. Guymon, supra, the court made the following statement:

And it was further declared that the failure to make annual statements and pay a prescribed fee shall operate as a forfeiture of its charter, and when the declaration is made as the statute provides, the existence of the corporation is ended.

The stipulated facts show that the petitioner’s predecessor did fail to make a report and pay the annual fees and that forfeiture of its charter was declared by the charter board on December 13, 1926. Under the laws of Kansas, as construed by the Supreme Court of Kansas, the existence of that corporation came to an end on the happenings of these events.

The petitioner stresses very strongly, however, the fact that it is a corporation formed under the same statutes as its predecessor with the same business, the same powers, and the same stockholders, and urges that it should be regarded as a continuation of such predecessor corporation, entitled to be termed the “ taxpayer ” within the meaning of section 117 (b), supra.

Such a conclusion might readily be reached if, under- the Kansas statutes, a revival of the predecessor corporation had been possible at the time the petitioner was organized and the predecessor corporation had been revived. See Calvin Zimmerman, 31 B. T. A. 754. In section 224, chapter 17, Devised Statutes of Kansas, 1923, provision was made for reinstatement of a charter inadvertently lost in the manner set forth in this case, but it was further provided that the application for such reinstatement must be made within six months of the forfeiture and cancellation. According to the stipulation, no such application was made within the period provided by the statute and there was no revival of the old corporation.

Clearly under the Kansas statutes the petitioner’s predecessor corporation passed out of existence on December 13,1926, and since the time within which it might have been revived had expired prior to the organization of the petitioner, it cannot be said that the petitioner and the predecessor corporation are the same “taxpayer” within the meaning of section 117 (b), supra. From December 13, 1926, to May 18, 1928, the business had no corporate existence, and, with reference to the deduction by the petitioner of a net loss sustained during that period, the decision of the Supreme Court in Planters Cotton Oil Co. v. Hopkins, supra, is controlling. Cf. McLaughlin v. Purity Investment Co., 75 Fed. (2d) 30 (C. C. A., 9th Cir.). Pennsylvania Co. for Insurances on Lives and Granting Annuities v. Commissioner, 75 Fed. (2d) 719 (C. C. A., 3rd. Cir.).

Judgment will be entered for the respondent.

       Sec. 117 (b). Net loss as a deduction. — If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called “second year”), and if such net loss is in excess of such net income (computed without such deduction), the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year (hereinafter in this section called “third year”) ; the deduction in all cases to he made under regulations prescribed by the Commissioner with the approval of the Secretary.


author: Seawell :

text:
    The Keener Oil & Gas Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 60789.
    Promulgated March 7, 1935.

      Charles D. Hamel, Esq., Lee I. Park, Esq., Alan E. Gray, Esq., and W. L. Clark, C. P. A., for the petitioner.

      Brooks Fullerton, Esq., and J. C. Hering, C. P. A., for the respondent.
   OPINION.

Seawell :

In 1922 all the assets of the Akin Oil Co., which had a value greater than the tax and interest here involved, were transferred to petitioner in exchange for certain of petitioner’s stock and an agreement on its part to “ assume and be bound by all the liabilities and .obligations of The Akin Oil Company * * * ”, which agreement is contained in resolutions of the parties dated March 14, 1922, set out in the findings of fact.

These facts would apparently render petitioner liable at law and in equity as a transferee of the Akin Oil Co. for any deficiency in its tax for the year 191T if timely action was taken in respect thereof by respondent under section 280 (a) (1) of the He venue Act of 1926. Petitioner insists (1) that such action was not taken by respondent against the Akin Oil Co. and (2) that its agreement embraced in the resolutions mentioned was limited to the tax for the year 1922 and did not include the tax of the transferor for the year 1917, the year involved. We will examine these contentions separately.

1. In reference to the proceedings against the Akin Oil Co., Docket No. 42903, petitioner says it is not bound. It insists that at the date the order of redetermination of deficiency in the amount of $20,943.86 was entered against the Akin Oil Co., it was nonexistent and dissolved, its last return being filed for the year 1922, in which its assets were acquired by the petitioner.

The charter of the Akin Oil Co. was not introduced in evidence in Docket No. 42903, supra, nor in the instant proceeding. What may have been the length of its life as expressed in its- charter is not shown. If dissolved, the date of dissolution is not shown by the record. There is no evidence in the record indicating that there was ever any judgment of dissolution or any certificate of dissolution filed with the secretary of state as the Compiled Statutes (1921) of Oklahoma, sections 5352, 5353, et seq., require in the event of a judgment of either voluntary or involuntary dissolution. Section 5361 provides: “ Unless other persons are appointed by the Court, the directors or managers of the affairs of such corporation at the time of its dissolution are trustees of the creditors and stockholders or members of the Corporation dissolved, and have full power to settle the affairs of the Corporation * * * and for such purposes may maintain or defend actions in their own names by the style.of the trustees of such corporation dissolved, naming it; and no action whereto any such corporation is a party shall abate by reason of such dissolution.” See Warren v. Wickizer, 61 Okla. 200; 160 Pac. 885; Frank G. Warden, 23 B. T. A. 24.

In behalf of the petitioner, however, it is insisted that the respondent accepted the last return (1922 return) of the Akin Oil Co. filed in March 1923 — with the notation thereon as stated in our findings of fact — and was thereby put upon notice of its dissolution, and that the petitioner corporation herein never made any representations with respect to the alleged waivers and cannot, therefore, be estopped to deny their validity. In support of such contention, The Newport Co., 24 B. T. A. 1246, affirmed in 65 Fed. (2d) 925, is relied on by petitioner. The petitioner, however, can gain no support in its contention from that case, as it was reversed by the Supreme Court in Helvering v. Newport Co., 291 U. S. 485. See also Kieckhefer v. United States (Ct. Cls.), 8 Fed. Supp. 734, and authorities therein cited.

The numerous consents described in our findings of fact are shown to have been accepted by the respondent and treated by him and by H. B. Johnson as valid consents. They were likewise so treated by the firm of W. O. Ligón Co. and by W. L. Clark, who was authorized, as stated in the findings of fact, to represent the Akin Oil Co. in all tax matters pending before the Bureau of Internal Bevenue.

Taking all facts and circumstances attending the execution of the consents on which the respondent relied into consideration, we are of the opinion and hold that he was warranted in accepting and treating the consent dated October 21,1927, which was signed “ The Akin Oil Company, By H. B. Johnson, Asst. Treas.”, with the seal of the company affixed, as a valid consent which had the effect of extending the statutory limitation for assessment and collection of tax deficiency for the year 1917 for the Akin Oil Co. to December 31, 1928, before which date a deficiency notice was mailed to that company. Bearing on the question of the validity of waivers or consents executed in the name of the Akin Oil Co. and on which’ we, in part, base our opinion herein as to their validity, see Commissioner v. Angier Corporation, 50 Fed. (2d) 887; certiorari denied, 284 U. S. 673; Morning Sun Publishing Co., 31 B. T. A. 356; Commissioner v. Godfrey, 50 Fed. (2d) 79; certiorari denied, 284 U. S. 653; Philip Carey Manufacturing Co. v. Dean, 58 Fed. (2d) 737; certiorari denied, 287 U. S. 623; Jaffee v. Commissioner, 45 Fed. (2d) 679; certiorari denied, 283 U. S. 853. Cf. Hamilton Web Co. v. Page, 8 Fed. Supp. 626; Wonder Bakeries Co. v. United States, 6 Fed. Supp. 228.

The deficiency notice having been duly mailed to the Akin Oil Co. and an order of redetermination of a deficiency in the amount of $20,943.86 having been entered against it on March 30, 1931, without any character of protest or objection, and following a motion by its counsel for a dismissal of the proceeding, that deficiency determination is, in our opinion and we so hold, valid and binding as to the Akin Oil Co.

The record shows that the notice to the Keener Oil & Gas Co. of its liability for the payment of the aforesaid deficiency was mailed to it October 14, 1931, which was within the time required by law in order to render it liable if a transferee of the assets of the Akin Oil Co.

2. The petitioner, however, contends that the aforesaid deficiency determination, not having been made on the merits, is not binding upon it, and it introduced testimony at the hearing with a view to showing that its agreement never contemplated the payment by it of any taxes due from the Akin Oil Co. other than those for the year 1922, contending that its agreement to “ assume and be bound by all the liabilities and obligations of The Akin Oil Company, including 1922 Federal income tax ”, when properly construed, meant that all' taxes of the Akin Oil Co. other. than those for 1922 were excluded from, or not included in, the agreement; in short, that the inclusion of the 1922 income tax meant (notwithstanding the clearly expressed terms of the agreement) the exclusion of all other taxes. We have found the facts to be otherwise.

In view of the fact that the deficiency determined against the Akin Oil Co. was not made after a hearing on the merits, it is not, therefore, res judicata as to the petitioner (see Wayne Body Corporation, 22 B. T. A. 401), and we are of the opinion and hold that the respondent erred in the computation of the invested capital of the Akin Oil Co. and it will be recomputed as may be agreed, counsel for respondent having stated at the hearing that the figures would be stipulated in the event the deficiency determination was held by us not to be res judicata as to the petitioner.

Upon careful consideration of the entire record we are further of the opinion and hold that the Keener Oil & Gas Co. is a transferee of the Akin Oil Co. and received from it all its assets in the manner set forth in the findings of fact; that the assets so received had a value in excess of the amount of the deficiency in tax determined against the transferor and interest upon the tax now asserted against petitioner, and that a part of the consideration for the assets received by it was the agreement to assume and be bound by all the liabilities and obligations of the Akin Oil Co., and that petitioner is, therefore, liable for the deficiency determined against the Akin Oil Co., together with legal interest as heretofore set out, subject to correction of the computation of the invested capital of the Akin Oil Co. as heretofore indicated. American Equitable Assurance Co. of New York, 27 B. T. A. 247; affd., 68 Fed. (2d) 46; Helvering v. Wheeling Mold & Foundry Co., 71 Fed. (2d) 749; certiorari denied, 293 U. S. 603; Continental Baking Co. v. Helvering, 75 Fed. (2d) 243; Louisiana & Arkansas Ry. Co. v. Helvering, 70 Fed. (2d) 286; Waterproof Products Co., 25 B. T. A. 648; Federal Oil Corporation, 24 B. T. A. 622; Richards & Hirschfeld, Inc., 24 B. T. A. 1295; Resthaven Memorial Cemetery, Inc., 30 B. T. A. 383.

Decision will be entered under Bule 50.