text:
    Willis R. Dearing, Petitioner, v. Commissioner of Internal Revenue, Respondent. Willis R. Dearing, Executor, Estate of R. H. Dearing Trust Estate, Petitioner, v. Commissioner of Internal Revenue, Respondent. Willis R. Dearing, Executor, Estate of R. H. Dearing, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent. Willis R. Dearing, Executor, Estate of Roy E. Dearing, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent. Mrs. R. H. Dearing, Petitioner, v. Commissioner of Internal Revenue, Respondent. Mrs. Willis R. Dearing, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 84192, 84193, 84194, 84195, 84196, 84197.
    Promulgated November 11, 1937.

      W. M. Van Nort, Esq., for the petitioners.

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

Hill:

Our first question is the correctness of the respondent’s action in including in gross income the fair market value of the oil payment contracts.

We had this same question before us in the recent case of Edwards Drilling Co., 35 B. T. A. 341, where we held that the fair market value of future oil payment contracts is not accruable as taxable income. We said in part:

In E. F. Simms, 28 B. T. A. 988, rights under oil leases were sold for cash and notes, together with a right to 400,000 barrels of oil produced from the property, if the land produced such an amount, and an overriding royalty on all oil produced. We concluded that the rights reserved to future payments in oil and money were contingent in character and, following the principle of Burnet v. Logan, 283 U. S. 404, did not represent property received or amounts accruable for the purpose of determining gain realized from the sale.
Here the petitioner’s rights to receive the consideration for drilling the wells were contingent upon the happening of events which could not be foretold during the taxable period with any fair degree of certainty because of the nature of the mineral from the sale of which the money was to be paid. As we said in E. F. Simms, supra, “A ‘gusher’ of today may be a mere ‘pumper’ or even a dry hole tomorrow.” In addition to this usual uncertainty that an oil well will continue to be a producer, the petitioner’s rights to payment were subject to the possibility that the Railroad Commission of Texas would decrease the daily production of the wells. The owners of the wells were not at any time in 1931 under a definite obligation to pay, since no liability was to come into existence until oil produced and saved had been marketed. The promise of the owners of the wells to pay for the drilling thereof was, therefore, contingent. Throughout the taxable period it was doubtful whether the petitioner would ever receive its consideration. The risk was always present.
The fact that the rights had a fair market value does not of itself require that the amount thereof be accrued as taxable income. Bedell v. Commissioner, 30 Fed. (2d) 622; Commissioner v. Darnell, Inc., 60 Fed. (2d) 82; Teck Hobbs, 26 B. T. A. 241; Woods v. Lewellyn, supra; Workman v. Commissioner, supra. See E. F. Simms, supra.
Under the facts in this case, we are of the opinion, and so hold, that only the cash actually received by the petitioner in 1931 for drilling the wells constitutes taxable income. Accordingly, it was error for the respondent to increase gross income by an amount for the contingent rights to future payments under the drilling contracts.

See also Teck Hobbs, 26 B. T. A. 241; Commissioner v. Moore, 48 Fed. (2d) 526; Commissioner v. Garber, 50 Fed. (2d) 588; Bedell v. Commissioner, 30 Fed. (2d) 622.

It is urged upon us that the fair market value of the contracts was stipulated and can not now be questioned, but such stipulation does not necessarily make them taxable. As we said in the Edwards Drilling Co. case, supra, “The fact that the rights had a fair market value does not of itself require that the amount thereof be accrued as taxable income.”

Respondent relies mainly on the case of W. L. Walls, 21 B. T. A. 1417; affd., 60 Fed. (2d) 347, where a lawyer accepted certain oil payments extending over several years as a fee. The Commissioner fixed a fair market value of $16,500 for the contract and included it in the taxpayer’s income for the year in which the contract was made. His action was approved by the Board and the Circuit Court. The facts in that case, however, were considerably different from those in the instant cases. In that case Walls was the owner of an one-eighth interest. The Midway Co. had bought five one-eighth interests at $16,500 each and stood ready to pay Walls a like sum for his interest, but Walls preferred to retain his oil payments. These facts, we think, differentiate that case from the instant cases, rendering it of no value as a precedent.

We hold that the respondent erred in including the fair market value of the oil payment contracts in the income of the partnership for 1932. Such payments are taxable as, if, and when received.

During the taxable year there was received on account of oil payments the sum of $172,385.21. Petitioners did not return any of this for taxation on the theory they were entitled to the return of costs of drilling before making any return of profit for taxation. Of these oil payment collections during the taxable year the respondent included $68,032.56, representing the proportionate difference between the contract price and the fair market value of the contracts. In view of our holding that the fair market value of the oil payment contracts may not be included in the income of the partnership, it results that the actions of both petitioners and the respondent were erroneous. The entire collections of $172,385.21 are includable in the gross income of the partnership but this should be credited by the $68,032.56 already included therein and proper deduction be made for depletion.

The remaining question is that of depletion on the oil payments which respondent disallowed.

Under the terms of the contracts in question it is clear to us that the petitioners are entitled to a deduction for depletion. They had an economic interest in the oil in place, which was depleted by extraction. In Palmer v. Bender, 287 U. S. 551, the Court said:

* * * It will be observed that the statute directs that reasonable allowance for depletion be made as a deduction in computing net taxable income, “in the ease of * * * oil and gas wells, * * * according to the peculiar conditions in each case.” The allowance to the taxpayer is not restricted by the words of the statute to cases of any particular class or to any special form of legal interest in the oil well. It is true that under article 215 of Treasury Regulations 62 the lessor of an oil or gas well is entitled to a depletion allowance upon the bonus and royalties received from the lessee. See Murphy Oil Company v. Burnet, supra. But there is nothing in the statute or regulations which confines depletion allowances to those who are technically lessors. The concluding sentence of the section that “In the case of leases the deductions allowed by this paragraph shall be equitably apportioned between the lessor and the lessee” presupposes that the deductions may be allowed in other cases. The language of the statute is broad enough to provide, at least, for every case in which the taxpayer has acquired, by investment, any interest in the oil in place, and secures, by any form of legal relationship, income derived from the extraction of the oil, to which he must look for a return of his capital.
In the present case the two partnerships acquired by the leases to them, complete legal control of the oil in place. Even though legal ownership of it, in a technical sense, remained in their lessor, they, as lessees, nevertheless acquired an economic interest in it which represented their capital investment and was subject to depletion under the statute. Lynch v. Halworth-Stephens Co., supra. When the two lessees transferred their operating rights to the two oil companies, whether they became technical sublessors or not, they retained, by their stipulations for royalties, an economic interest in the oil, in place, identical with that of a lessor. Burnet v. Harmel; Bankers’ Pocahontas Coal Company v. Burnet, supra. Thus throughout their changing relationships with respect to the properties, the oil in the ground was a reservoir of capital investment of the several parties, all of whom, the original lessors, the two partnerships, and their transferees, were entitled to share in the oil produced. Production and sale of the oil would result in its depletion and also in a return of capital investment to the parties according to their respective interests. The loss or destruction of the oil at any time from the date of the leases until complete extraction would have resulted in loss to the partnerships. Such an interest is, we think, included within the meaning and purpose of the statute permitting deduction in the case of oil and gas wells of a reasonable allowance for depletion according to the peculiar conditions in each case.
The statute makes effective the legislative policy, favoring the discoverer of oil, by valuing his capital investment for purposes of depletion at the date of the discovery rather than at its original cost. The benefit of it accrues to the discoverer if he operates the well as owner or lessee, or if he leases it to another. It would be an anomaly if that policy were to be defeated and all benefit of the depletion allowance withheld because be chose to secure the return of bis capital investment by stipulating for a share of the oil produced from the discovered well through operation by another.

See also Chester Addison Jones, 31 B. T. A. 55; 82 Fed. (2d) 329, and William Fleming, 31 B. T. A. 623; 82 Fed. (2d) 324.

In the recent case of Thomas v. Perkins, 301 U. S. 655, the United States Supreme Court held that any one having an economic interest in oil and gas in place is entitled to the statutory percentage depletion.

Under section 114 (b) (3) of the Revenue Act of 1932 petitioners are entitled to depletion of 27½ per centum of the oil payments during the taxable year.

In the Edwards Drilling Co. case, supra, it was held that the entire cost of drilling wells was deductible as an ordinary and necessary business expense in the year in which incurred.

No such claim is made in this case, and the question of depletion was not presented in the Edwards case. In view of the decisions of the Supreme Court in Thomas v. Perkins, supra, and Palmer v. Bender, supra, we think the correct rule is for the petitioners to recoup their expenditures by depletion.

In Docket No. 84193 respondent determined a 25 percent delinquency penalty, pursuant to the provisions of section 291 of the Revenue Act of 1932, for failure to make and file a return within the time prescribed by law. Subsequently, in 1935, a return was prepared by respondent, pursuant to section 3176 of the U. S. Revised Statutes, as amended. Petitioner has offered no evidence to show that the failure to file a return within time was due to reasonable cause and not to willful neglect. Respondent’s determination is, therefore, approved, but the amount of the penalty will be recomputed on the basis of the tax finally redetermined to be due under Rule 50.

Decision will be entered under Rule 50.


source: Caselaw Access Project

author: Arundell :

license: Public Domain

text:
    Commonwealth, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 88264.
    Promulgated November 11, 1937.

      Herbert L. Swett, Esq., and Roscoe C. Nelson, Esq., for the petitioner.

      T. G. Histon, Esq., for the respondent.
   OPINION.

Arundell :

There is no issue in this case as to the petitioner's having sustained a deductible loss in 1934 through the conveyance of its equity in the real estate to the mortgagee. As the parties have agreed that the basis for gain or loss was $8,988.85 and the petitioner lost all of its interest in the property, there is no longer any question as to the amount of the loss sustained. The only issue requiring decision is whether the loss was an ordinary loss sustained on abandonment of the property and deductible in full, or whether it was a capital loss arising out of a sale of the property and subject to the $2,000 limitation prescribed by section 117 of the Revenue Act of 1934.

The only indications of a sale are the recitations in the deed of considerations of $50 and release of liability under the mortgage. These, however, were not in fact considerations for the conveyance of petitioner’s equity. Under petitioner’s agreement with the mortgagee the $50 was paid to the petitioner for documentary stamps, recording fees, and for the personal property on the premises conveyed. The purported release of liability under the mortgage was of no benefit to the petitioner for it had no liability under the mortgage. Neither the petitioner nor its grantor assumed the mortgage liability, but took title subject to it. Hence, there was no personal liability on the part of the petitioner. Hulin v. Veatch, 148 Or. 119, 35 Pac. (2d) 253; Metropolitan Bank v. St. Louis Dispatch Co., 149 U. S. 436. Fulton Gold Corporation, 31 B. T. A. 519. Inasmuch as there was in fact no consideration to the petitioner, the transfer of title was not a sale or exchange. The execution of the deed marked the close of a transaction whereby petitioner abandoned its title. Cf. A. J. Schwarzler Co., 3 B. T. A. 535, Greenleaf Textile Corporation, 26 B. T. A. 737, holding that a taxpayer does not sustain a deductible loss of the value of real estate while retaining title to it.

Counsel for the respondent, by a memorandum in lieu of a brief, states, without argument, that he relies on the case of Watts v. Spencer, 51 Or. 262; 94 Pac. 39. In a long opinion in that case the court said that “there is no such thing as abandonment to particular persons, or for a consideration.” We presume that this is the language that counsel desires us to consider. We do not inquire whether the cited case, decided in 1908, is still regarded as good law in Oregon, for in our opinion it is not controlling here. That case involved a parol sale of land with appurtenant water rights. The inquiry was as to who among several claimants had priority in certain water rights. We have no such question here. This case raises no question as to whether the petitioner parted with its property; that is established and it is immaterial whether the process of parting be called an abandonment or given some other designation. The important fact is that the petitioner has irrevocably lost its investment in the property. We hold the loss sustained to be an ordinary loss resulting in an allowable deduction in the full amount of $8,988.85.

Decision will be entered under Rule 50.


author: Hill:

text:
    W. T. Carter, Jr., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 86558.
    Promulgated November 11, 1937.

      G. K. Munson, Esq., and Palmer Hutcheson, Esq., for the petitioner.

      James H. Yeatman, Esq., for the respondent.
   OPINION.

Hill:

Petitioner and his wife since the date of their marriage in 1910 and at all times have been residents of the State of Texas. Prior to his marriage petitioner acquired by gift from his father 650 shares of stock of the W. T. Carter Lumber & Building Co., a Texas corporation. Subsequently (but prior to 1930) petitioner acquired additional shares of stock of the same company (1) by purchase with community funds, (2) by way of stock dividends, and (3) by gift from his mother. In 1930 petitioner sold 500 shares of the stock, and in the taxable year 1931 sold at a profit 500 additional shares.

The separate acquisitions of stock by petitioner having been merged and commingled in the certificates later issued for larger numbers of shares, including the stock dividends, apparently respondent, applying the first in, first out rule, treated the sale of 500 shares in 1930 as having been made out of the 650 shares first acquired by petitioner by gifts from his father, and the 500 shares sold in the taxable year as consisting of the remaining 150 shares of the original gifts, and 350 shares issued as stock dividends. Respondent further held that the stock dividends constituted separate property of petitioner, and so taxed the profit derived from the sale in 1931 as separate income of petitioner. Petitioner contends that the entire profit should be treated as community income of himself and wife. There is no controversy as to cost bases or amount of gain realized. Petitioner’s position, we think, must be sustained.

Whether the profit in question was the separate property of petitioner, or constituted community property of himself and wife, must be determined according to the laws of Texas. “What are the property rights of husband and wife arising from their marital relationship is peculiarly a state question and we are bound on such question by the decisions of the state courts.” James R. Parkey, 16 B. T. A. 441, 449. Cf. Poe v. Seaborn, 282 U. S. 101, and Hopkins v. Bacon, 282 U. S. 122.

Vernon’s Annotated Texas Statutes (Civil), vol. 13, provide in part material here as follows:

Art. 4613. Husband’s Separate Property. All property of the husband, both real and personal, owned or claimed by him before marriage, and that acquired afterwards by gift, devise or descent, as also the increase of all lands thus acquired, and the rents and revenues derived therefrom, shall be his separate property. * * *
[Article 4614 similarly defines the wife’s separate property.]
Art. 4619. Community Property. All property acquired by either the husband or wife during marriage, except that which is the separate property of either, shall be deemed the common property of the husband and wife, and during coverture may be disposed of by the husband only. * * *

Prior to 1917 only the “increase” of the spouses’ separate lands in Texas constituted separate property, but in that year an act was adopted making the “rents and revenues” from the separate lands of each spouse his or her separate property. However, this enactment, as amended in 1921, was held invalid on account of the insufficiency of the caption to the bill; and it was also held unconstitutional as to the wife’s separate estate for the reason that her separate property rights, having been defined by the state constitution, could neither be increased nor diminished by legislative act. Arnold v. Leonard, 114 Tex. 535; 273 S. W. 799.

The statutes cited above, which were adopted by the Texas Legislature in 1925, reenacted the provisions making the rents and revenues from the husband’s separate lands the separate property of the husband, and cured the defective caption to the bill theretofore held invalid on that account. Stephens v. Stephens, 292 S. W. 290.

It will be observed that these statutes relate only to the separate lands of the husband and not to the “increase” of or “rents and revenues” derived from his separate personalty.

Under the community property system, in the absence of a contrary statutory provision, it is the general rule that the increase, rents, and profits of the separate property of the spouses fall into the community, 31 C. J. 29, and this was the early rule in Texas prior to 1917, Mitchell v. Mitchell, 80 Tex. 101; 15 S. W. 705; Dixon v. Sanderson, 72 Tex. 359; 10 S. W. 535. And statutes expressly giving to the separate estate the increase or fruits of particular kinds of separate property impliedly exclude other exceptions to the general rule previously established that all issues and profits of the separate property fall into the community. 31 C. J. 31, citing Howard v. York, 20 Tex. 670; Braden v. Gos, 57 Tex. 37. Thus, the statutes above referred to did not abrogate or in any way affect the long established general rule recognized by the courts of Texas that the increase, rents, revenues, and profits of the separate personalty of either spouse belonged to the community.

Following that rule, it was said by the Supreme Court of Texas in Claflin v. Pfeifer (March 14, 1890), 76 Tex. 469; 13 S. W. 483, that “It seems to be settled by the previous decisions of this court that profits on investments of the wife’s separate estate are community property, and liable for the husband’s debts.”

In Dixon v. Sanderson, supra, the same court held that money received as a prize on a lottery ticket purchased with the separate money of the wife was community property. In Schmidt v. Huppman, 73 Tex. 112; 11 S. W. 115, a stock of goods, the separate property of the husband at the date of his marriage, was from time to time replenished and increased until the wife’s death. It was held that the goods only to the extent of their value at the date of their marriage was the husband’s separate property. The same rule was applied in Smith v. Bailey, 66 Tex. 553; 1 S. W. 627, where the wife originally owned the stock of goods as her separate property.

It has also been held that rents of the wife’s separate property belonged to the community, Schepflin v. Small, 23 S. W. 432; De Berrera v. Frost, 77 8. W. 637, and interest accruing on the separate funds of the wife is community property, Cabell v. Meinczer, 35 S. W. 206; Parrish v. Williams, 53 S. W. 79. “All moneys and property made in commercial transactions, by either husband or wife, is community property”, even though the capital employed is the separate property of one of the spouses. Mitchell v. Mitchell, supra, at page 709.

This doctrine in Texas has been modified in some cases to the extent of holding that where the increase in separate property was spontaneous and independent of assistance from the community, it was separate property, Stringfellow v. Sorrells, 82 Tex. 277; 18 S. W. 689, but where it involves care, labor, or attention from the members of the community, it is community property, Hayden v. McMillan, 23 S. W. 430. In the case at bar, petitioner devoted the major portion of his time to the management and operation of the corporation which issued the stock in controversy.

In Brand v. Brand (March 3, 1937), 102 S. W. (2d) 310, it was held that the husband’s profits from the sale in Texas during marriage of corporation stock were community funds. At the date of marriage the husband had 40 shares of Gulf Oil Co. stock. This was all paid except the sum of $120, which was afterwards paid. During marriage the husband sold at a profit 20 of his 40 shares of stock. The court held that the $120 was community property, and that the entire profit derived from the sale was also community funds.

Under the rule established by the foregoing decisions of the Texas courts, we can reach no other conclusion than that the profit derived from the sale of the stock here in controversy was community property of petitioner and his wife, and not his separate property, and this is true whether the stock sold was all his separate property, or part separate and part community. It follows that only one-half of such profit may be included in petitioner’s gross income and taxed to him. Hopkins v. Bacon, supra. Respondent’s action is reversed.

Reviewed by the Board.

Judgment will be entered under Rule 50.


author: Mellott :

text:
    Henry O. Havemeyer, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 82505.
    Promulgated November 12, 1937.

      Henry B. Closson, Esq., and William M. Sperry, 2nd, Esq., for the petitioner.

      W. H. Payne, Esq., for the respondent.
   Opinion.

Mellott :

The Commissioner determined a deficiency in petitioner’s income tax for the year 1932 in the amount of $529.31. Petitioner apparently concede that certain minor adjustments were properly made, but assigns as error the Commissioner’s disallowance of $2,236.80 of $3,180.60 deducted by him in his return for said year as contributions.

The facts were stipulated, but at the hearing petitioner offered as exhibits the re.urns of the association hereinafter referred to for the years 1918 to 1932, inclusive, and such returns were received in evidence. The facts may be summarized for present purposes but the issue will be outlined first.

Petitioner contends that an association—The United Special Aid Association—organized in 1918 by him and members of his family, together with a close business associate, is a corporation, trust, fund or foundation, organized and operated exclusively for charitable purposes and hence that the contributions made by him to it during the taxable year are deductible under section 23 (n) of the Revenue Act of 1932, shown in the margin

Respondent contends that the association, notwithstanding the statement of purposes or object contained in its constitution, was not a charitable organization within the purview of the above section, but a mere “novel scheme”, adopted by petitioner to enable him to take a deduction which otherwise would be denied him. In this connection it is contended, in effect, that petitioner was enabled to make contributions to individuals and causes selected by him—largely superannuated servants-—and to deduct the amount of such contributions, though a similar deduction is denied to other taxpayers equally generous. No charge of mala fides is made—in fact the respondent refers to the motives of petitioner largely as “praiseworthy”—but the question is simply whether the association is, or is not, a charitable trust, fund, or foundation!

The articles of association, signed by petitioner, his wife, several members of his family, and a business associate, provide that they, “in order to unify and coordinate” their charitable activities, organized “an association to be operated exclusively for charitable purposes.” The constitution, incorporated in the articles, provides that the “Object” is as follows:

The purpose of this Association shall be to Collect funds and therefrom to give relief to such indigent and deserving person's as the Board of Managers may from time to time consider to be in especial need of the bounty of the Association. No payment shall be made from the funds of the Association to or for the use of any officer, manager or member of the Association.

Theodore A. Havemeyer was president of the association, petitioner was vice president, McCafferty, the business associate, was secretary and treasurer, and' they, together with Charlotte Havemeyer and Frederick C. Havemeyer constituted, and. still constitute, the board of managers. The association maintained mo independent offices, but such books and records as it had were kept at, and the meetings of the board of managers have been held in, the offices of Havemeyer & Elder, Inc. The officers of the association were also officers of Havemeyer & Elder, Inc. They, in the language of the stipulation, “invariably determined the amounts to be paid to the individuals given aid by the association.”

The funds contributed to the association were deposited to its credit with the Chase National Bank from which payments were made by checks of the association, signed by its treasurer, to those designated to receive them by the board of managers. The association received contributions from the time of its formation in 1918 through the year 1931 in the aggregate amount of $47,975.87 and distributed during that period the total sum of $46,992-23.

During the taxable year 1932, the association received contributions from its members aggregating $3,618.85, $2,257.50 of which was contributed by petitioner and the balance—except $150 which was contributed by a business associate—was contributed by members of his family, including nephews and nieces.

Paragraphs 10 to 13, inclusive, of the stipulation are as follows:

10. During said year the Association gave relief to the following persons considered by the Board of Managers of said Association to be indigent and deserving, in the following amounts:
11. None of the above named individuals, who received assistance from this Association during the year 1932, is related to the petitioner or any member of said Association either by blood or marriage, nor is he or they under any legal or equitable obligation to contribute to the support of any one of them.
12. Before making contributions to the foregoing individuals said Association ascertained through its members or officers the following facts in respect to their circumstances:
(a) E. J. Dukes is a negro who was employed as a golf caddie at the Mountain Lake Club, Mountain Lake, Florida, and served the petitioner in that capacity at times when he was at that Club. During the winter of 1932 and for several years prior thereto petitioner spent considerable time at the foregoing club. In 1931, because of a malignant disease from which he was suffering, said Dukes became unable to perform the work to which he was accustomed, and was unable to secure any other employment which he might have been able to perform, due to the general financial condition which then existed throughout the country generally. By 1932 the disease had progressed to the point where Duke’s eye-sight was materially impaired and hospitalization became necessary. These facts being brought to the attention of the Association by the petitioner, it concluded to assist him. In 1931, the Association contributed $90. toward the support of Dukes and in 1932, it contributed $120. In that year it also paid for his account $169. for medical services rendered to him, $24 for hospitalization and $17.60 for medical supplies for his use.
(b) William Grant was employed for 27 years prior to December 1, 1926, by the Havemeyer Real Estate Company, a New York corporation owning and operating certain real property, located in the City of New York, the stock of which was owned, 1/9 th by the petitioner and the remainder by his brothers and sisters or the descendants of deceased brothers and sisters. On or about December 1, 1926, said Grant suffered a paralytic stroke and thereby became incapacitated from further work. He was at that time 67 years of age, married, and his wife was solely dependent upon him for support Under those circumstances the association concluded to contribute $100. per month towards his support, which amount was continued through the year 1932.
(c) James Hade was employed from 1893 to 1929, by Mrs. Charlotte Havemeyer, wife of petitioner, as a groom and coachman. In 1929, by reason of a double rupture and the infirmities of old age, he became incapacitated for work. At that time he was about 68 years of age and married. His wife had been an invalid for many years and was solely dependent upon him for support. Upon these facts the Association concluded to contribute $75. per month towards his support and did so down through the year 1932.
(d) Eliza Jennings (colored) is the widow of a former colored employee of the late Theodore A. Havemeyer, father of petitioner who died in 1897. Her husband’s father had been a slave of the Havemeyer family. She was a woman of great age and physical infirmity. She was mainly supported by her sons but she applied to the Association for assistance to pay rent for rooms at West Mahwah, N. J., and it was concluded to pay her $5. per month.
(e) E. S. Lambosia, in 1932, and for many years prior thereto was employed as a waiter in the Recess Club of New York City, of which Club the petitioner is a member. In 1932, because of the condition of his feet, said Lambosia became ill both physically and mentally, and stated that he intended to commit suicide. This coming to the attention of the petitioner he recommended to Lambosia that he consult Dr. M. W. Locke of Williamsburg, Canada, but said Lambosia stated he had a large family and did not have funds with which to make the trip. These facts being brought to the attention of said Association, it gave to Lambosia $116.00 necessary for him to make the trip.
(f) Carrie D. Meyer is the widow of William E. Meyer, who in his lifetime .and for many years prior to his death was employed as a bookkeeper by said Havemeyer Real Estate Company. On his death in 1930 it was found that his widow was entirely unprovided for. Due to her age she could not be self supporting. These facts being brought to the attention of said Association, it contributed $50. per month towards her support.
(g) Louis Platone was in 1932 an independent taxi driver in the City of New York who had from time to time been engaged by the petitioner and various members of his family. In that year, due to ill-health and' to the general financial stress of the people generally, Platone was unable to meet certain payments required in his business. These facts coming to the knowledge of the Association through the petitioner, it contributed to him the sum of $130.00.
(h) A. Anderson was employed as a gardener by the petitioner for more than 30 years. In 1932, due to the infirmities of age, his mind became unbalanced and it was necessary that he have constant care and attention. This duty was undertaken by his daughter Lily Rhodes, but she required financial assistance, and this was furnished by said Association to the extent of $60. per month.
(i) H. Fletcher was employed as a watchman by the Brooklyn Eastern District Terminal (a wholly owned subsidiary corporation to Havemeyer & Elder, Inc.).from November, 1928 to June, 1932, when due to tuberculosis he became incapacitated for work. He was married and had two children who were dependent upon him. He received some assistance from relatives, but it was insufficient for his care and support. These facts being brought to the attention of the Association it contributed $150 per year in monthly installments, toward his support. These payments were made to his wife.
13. The payments made by the Association to or for the benefit of the following individuals during the year 1932, were at the request and upon the recommendation of petitioner, Henry O. Havemeyer:
The payment of $900.00 by the Association to James Hade during the year 1932 was upon the request of Mrs. Charlotte Havemeyer, wife of petitioner.

The returns of the association show that several individuals have received substantial sums from it during the different years. Thus, during the years 1918 to 1926 W. T. Miller received $15,696.91—an average of $1,744 per year. In 1927 and 1928 the association paid to or for him the additional sum of $1,668.02, which included funeral expenses and medical attention making in all $17,364.93. During the years 1918 to 1929 it paid to or for the benefit of Sarah O’Byrne $6,068. During the years 1927 to 1931 it paid to Florence Bone $1,985 and from 1929 to 1932 it paid Wm. Grant $4,200 and James Hade $3,900. The stipulation shows why the payments were made to Grant and Hade, but the record is silent as to why they were made to the others. The payments made by the association as shown in paragraph 10 of the stipulation, supra, are typical, both in the number of persons receiving them and in the aggregate amounts paid during each year of its existence.

So much for the facts, which, though possibly set out in unnecessary detail, serve as a background for considering the contentions of the respective parties. Quoting from Helvering v. Bliss, 293 U. S. 144, petitioner says that since the exemption of income devoted to charity was begotten from motives of public policy, the statute allowing it should be liberally construed. Granted; but petitioner “must bring himself strictly within its terms”, Fred Dohrmann, Jr., 18 B. T. A. 66, 69, and “show that the recipient of his contribution is both organized and operated exclusively for the purposes specified by the statute.” Fremont C. Peck, 34 B. T. A. 402, 404 (on appeal to the Second Circuit). If he does so he is. entitled to the deduction from gross income; otherwise, the deduction must be disallowed.

Many contributions, though made from the highest and most praiseworthy motives, are not deductible from income. Thus, under the revenue acts prior to 1935, contributions made by corporations, though for purely charitable purposes; were not deductible. Old Mission Portland Cement Co. v. Helvering, 293 U. S. 289. A contribution made by a taxpayer to his partially dependent mother has been held to be not deductible, J. D. Bowles, 1 B. T. A. 584, as also contributions to cemetery associations, Schuster v. Nichols, 20 Fed. (2d) 179; George L. Craig, 11 B. T. A. 193, and contributions to the civic club of a city, whose activities are recreational. Joseph M. Price, 12 B. T. A. 1186. If petitioner and his wife had contributed directly to the support of their former servants, the amounts so contributed would not have been deductible. Are the amounts which they contributed to the association, most of which was used for such purpose, deductible? The answer to this question depends upon the character of the association itself; for “the statute requires that such contributions be made to some form of organized charity.” Fred Dohrmann, Jr., supra.

No hard and fast rule can or should be laid down for determining whether a corporation, fund, trust, or foundation has been organized and is being operated exclusively for charitable purposes. Each case must be decided upon its own facts. But we may look to established law to determine the meaning of “charitable.” Pennsylvania Co. for Insurance on Lives, etc. v. Helvering, 66 Fed. (2d) 284.

In one of the cases chiefly relied upon by petitioner—Bok v. McCaughn, 42 Fed. (2d) 616—the court intimates that one of the tests which may be applied is whether the activity engaged in by the corporation is one “for the promotion of which a charitable trust might be created.” If such a test be applied then the inquiry should be whether the elements of a charitable trust are present. In vol. II, Restatement of the Law of Trusts, sec. 368, it is said: “The common element of all charitable purposes is that they are designed to accomplish objects which are beneficial to the community.” “Charity is generally defined as a gift for public use” (Kain v. Gibboney, 101 U. S. 362, 365), or “for the benefit of an indefinite number of persons” (Jackson v. Phillips, 14 Allen (Mass.), 556); but it seems to be essential that “some public benefit be derived.” Cf. Pennsylvania Co. for Insurance on Lives, etc. v. Helvering, supra, and cases cited; Perin v. Carey, 24 How. 465, 506 (65 U. S. 465); In re DeLong's Estate, 250 N. Y. S. 504.

While it is debatable whether the word “charitable” as used in the revenue acts supra has the same shade of meaning that it has when used in connection with trusts, that question need not be decided. Examining the articles of the association it appears that it was organized “to unify and coordinate the charitable activities” of its organizers. What were the “charitable activities” which were to be unified and coordinated? Apparently contributions to superannuated or disabled employees or former servants of the organizers or dependents of such. Two in this category—Grant and Hade— received during the taxable year approximately the same amount from the association that this petitioner contributed to it. All of the others who received aid during the year were likewise individuals, or the dependents of individuals, who had rendered services in some form or other, to petitioner, members of his family, or corporations in which he and the members of his family owned most of the stock. Apparently the same thing was true for prior years, though the evidence is not sufficient to justify us in making any such finding. However, the returns of the association for such prior years show that aid was rendered to only a few individuals in each year, and generally in very substantial amounts.

The evidence, we think, indicates very clearly that the purpose of the association was “to confer a private benefit” on persons in whom petitioner and the members of his family were interested and that neither the public nor the community in general were interested therein, either as members, contributors, or beneficiaries. Cf. In re Westinghouse Estate, 281 N. Y. S. 683; Proctor Patterson et al., Executors, 34 B. T. A. 689. The rule enunciated by the Board in Henry G. DuBois, 31 B. T. A. 239, seems to be applicable. Therein it was said, under facts quite similar to those before us, that “If the corporation was operated even partly for purposes that were private or personal to the petitioner the contributions are not deductible. Charitable contributions to be deductible must be for public, as opposed to private, charity, i. e., ‘free from stain or taint of every consideration that is personal, private or selfish.’ ” The same thought was expressed by the court in Smith v. Havens Relief Fund Society, 90 N. Y. S. 168; affd., 118 App. Div. 678, whose language we paraphrase : The use should be public and the benefit should be intended, not for individuals as such, but as representatives of a class. The announcement of an altruistic aim may not be a cover for the bestowal of a private bounty.

Consideration has also been given to G. C. M. 19028, Internal Revenue Bulletin XVI-40-8951, holding that an employee’s organization engaged in administering a fund consisting of amounts contributed by the employees and the employer or others, which fund is to be applied in the discretion of the administrator of the fund to the financial relief of the employees or their families, is a charitable organization within the meaning of the section under consideration, and to Harrison v. Barker Annuity Fund, 90 Fed. (2d) 286. However, the Board is of the opinion that the association in the instant proceeding can not be classified as a “charitable * * * corporation * * * trust * * * chest * * * fund or foundation” within the purview of the section of the revenue act under consideration. It follows that the contributions made by petitioner to the association in the taxable year are not deductible from his gross income and that the respondent did not err in determining the above deficiency.

Reviewed by the Board.

Judgment will be entered for the respondent.

       SEC. 23. DEDUCTIONS FROM GROSS INCOME.
      In computing net income there shall be allowed as deductions:
      *******
      (n) Charitable and Other Contributions.—In the case of an individual, contributions or gifts made within the taxable year to or for the use of:
      *******
      (2) a corporation, or trust, or community chest, fund or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or Individual.


author: Kern:

text:
    J. Natwick, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 83046.
    Promulgated November 12, 1937.

      Benjamin H. McKindless, Esq.,, for the petitioner.

      Fred H. Shearer, Esq., and Benjamin Brodshy, Esq., for the respondent.
   OPINION.

Kern:

The present proceeding arises on respondent’s determination of a deficiency of $14,051.27 in petitioner’s income tax for the year 1932, and involves the single question of whether the cancellation of a debt of $66,679.22 owed the corporation by the petitioner in exchange for his surrender of 843 shares of the company’s stock constituted a transaction “essentially equivalent to the distribution of a taxable dividend”, within the meaning of section 115 of the Revenue Act of 1932, the relevant provisions of which are set out in the margin. As the price at which the stock was surrendered to the corporation was the same as that paid for it originally by the petitioner, respondent concedes that no gain was realized on the transaction unless it is to be treated as a dividend under section 115 (g).

Since petitioner and the corporation eventually treated the withdrawals made by petitioner in 1929 and prior years, as set out in our findings, as a loan, by the subsequent execution of a demand note dated December 31, 1929, and no question has been raised either on the pleadings or in argument that these withdrawals constituted income to petitioner in the years of withdrawal, we will consider the sum of such withdrawals as an obligation owing by petitioner to the corporation and canceled by it in 1932 as a part of the transaction herein considered.

The legislative genesis of section 115 (g) has been traced at length in our decisions, Pearl B. Brown, Executrix, 26 B. T. A. 901, at 906, 907; affd., 69 Fed. (2d) 602 (C. C. A., 7th Cir.); Henry B. Babson, 27 B. T. A. 859, at pages 866, 867; affd., 70 Fed. (2d) 304; see also note, 49 Harvard Law Review 1344 (1936); and we need do no more now than recall that the comparative immunity from taxation which stock dividends acquired under the doctrine of Eisner v. Macomber, 252 U. S. 189, and the ultimate avoidance of tax on the distribution which could be accomplished by the redemption of such a dividend led to the enactment of the prototype of the present provision in 1921 and to the enlargement of its base in 1926 to include all redemptions in the nature of a dividend distribution.

The present section or its prototypes have been considered by this Board and the courts in thirty odd cases, many of which have been cited by counsel in the present proceeding, and are set out in the margin.

Without deciding whether the question presented here is purely one of fact or a mixed question of fact and law, we are of the opinion that the respondent is correct in maintaining in this case that his determination under this, as under other .provisions of the statute, carries a presumption of correctness which must be overthrown by a preponderance of the evidence on the part of the petitioner. We said in George Hyman, 28 B. T. A. 1231, at page 1233: “From such facts it is just as conceivable that the redemption and cancellation were essentially equivalent to a dividend as it is that they were not; and, since the respondent has determined that they were, and the burden of proof is on petitioner, we can not affirmatively find that it was not.”

Subsection (g) embraces any cancellation or redemption of stock, regardless of whether it was issued as a stock dividend, if it is made “at such time and in such manner” as to make the redemption “essentially equivalent” to the distribution of a taxable dividend. Petitioner relies on certain expressions in earlier cases decided by this Board and the courts, which, if read alone, would seem to support the proposition that in order for this subsection to apply there must be an intimate causal relation between the issuance and the redemption of the stock. In Pearl B. Brown, Executrix, supra, for instance, we spoke of the absence of any relation between issuance and redemption and of any evidence of a “continuing plan” or of “artifice” (at page 908); and we used the same or similar language in other-cases in justifying a judgment favorable to the taxpayer; see Henry B. Babson, supra, at page 870; T. Pierre Champion, 27 B. T. A. 1312; Alfred A. Laun, 26 B. T. A. 764, at page 770; Rockwood Sprinkler Co., 13 B. T. A. 393; James A. Connelly, 30 B. T. A. 331, at page 336; Louis Rorimer, 27 B. T. A. 871, at page 878; but what we have said elsewhere and in later cases clearly indicates that motive, while highly important, is not determinative. In Annie Watts Hill, 27 B. T. A. 73, we said at pages 75, 76:

But the search for a relationship between the issuance of the stock and its redemption, evidencing a continuing, unified plan to distribute surplus, is not the sole test to which a distribution, coupled with a redemption, may be subjected, and it may fall within the statute even in the absence of those elements. The statute invites scrutiny of the time and manner of the cancellation or redemption of stock. It makes no requirement that the issuance and redemption be related; indeed, under its terms, the manner of the issuance (whether or not as a dividend) is not material. Consequently, we must also scrutinize the redemption and distribution with respect to the time and manner when they occur, and the circumstances surrounding them at that time. With that in mind, it is quite apparent that a redemption and distribution may fall within the statute although at the time the stock was issued there was no intention to redeem it later as a means of surplus distribution, or plan to avail of such method as a device by which to circumvent the usual tax upon dividends.

See also George Hyman, supra, at page 1234, and Eloood W. McGuire, 32 B. T. A. 1075. The Circuit Court (7th Cir.), in affirming the latter case reaffirmed this principle, as follows:

Neither artifice, subterfuge or bad faith need be present to bring a transaction within the meaning of the statute here involved for as we read the law a taxpayer may well act with, the utmost good purpose and without evil intent and yet his transactions may in effect be the equivalent of the distribution of a taxable dividend.

In the light of these cases the fact that we are unable to find any relation here between the issuance of the stock to petitioner in 1925 and the redemption of the 843 shares on December 31, 1982, or any “continuing plan” or “artifice” does not determine the matter.

Nor does the fact that the redemption was not pro rata, and affected only the petitioner, take it out of the class of distributions “essentially equivalent” to dividends. James D. Robinson, 27 B. T. A. 1018; Elwood W. McGuire, supra; Leopold Adler, 30 B. T. A. 897. Neither need distributions to stockholders be pro rata in order to constitute dividends. Lincoln National Bank, Executor, 23 B. T. A. 1304; affd., 63 Fed. (2d) 131; Ennalls Waggaman, 29 B. T. A. 473; affd., 78 Fed. (2d) 721; certiorari denied, 296 U. S. 618; Hugh H. Miller, 25 B. T. A. 418; dismissed, C. C. A. 2d Cir., August 15, 1933. As we said in Shelby H. Curlee, 28 B. T. A. 773, at page 782, it is not necessary that a redemption to come within the definition of subsection (g) must meet all the legal requirements of a regular dividend. Nor would the distribution’s similarity be destroyed if it were greater"than the company’s earnings. George Hyman, supra. Nor does it matter that the stock redeemed was held in the company’s treasury and not canceled; James D. Robinson, supra. And we have held that the return of stock by a stockholder to the corporation in consideration of the cancellation of his debt constitutes a taxable dividend, William G. Huntoon, 14 B. T. A. 459; General Counsel Memorandum 11304, C. B. XII-1, p. 135.

The respondent, while admitting that no relation exists between the stock issuance and its redemption in 1932, finds the explanation of the transaction in December 1932 in the conference which took place in 1932 between the company’s bookkeeper and the internal revenue agent in Baltimore, when the latter contended that certain withdrawals made by the petitioner in 1929 and in 1930, similar in all respects to the ones involved in this case, constituted dividends taxable to petitioner in those years. The controversy respecting 1929 income was settled through the correction of an error in bookkeeping which is set out in our findings, but it was conceded by petitioner as to the 1930 withdrawals that they were, in fact, an “informal dividend” and the sum of $13,388.84 was consequently charged on the books of the company as such, and petitioner paid tax on it as a dividend. Petitioner urges that the redemption was motivated by a business purpose. Where both the issuance and the subsequent redemption of stock were dictated by legitimate business purposes, as, for example, where there was an expansion of the corporation’s business and a subsequent contraction of its business necessitating a change in its capital structure, we have held in numerous cases that proof of such facts will remove the redemption from the effect of subsection (g); T. Pierre Champion, supra; Alfred E. Fuhlage, 32 B. T. A. 222; George A. Lembcke, 33 B. T. A. 700. Cf. Commissioner v. Quackenbos, 78 Fed. (2d) 156; Commissioner v. Cordingly, 78 Fed. (2d) 118. But petitioner has shown no necessity existing in 1932 for contracting the company’s business. In fact, in March of that year, by an amendment to its charter, the company was empowered to carry on many new functions not originally contemplated, such as the sale of agricultural products, etc.; a fact which certainly does not support the contention of a contracting business. It is true that the company’s gross sales had fallen off sharply from 1931 and that it did not recover its 1932 position until 1931, but in that period of general economic depression this was probably true of most businesses. The petitioner’s contention rests solely on the demands which were being made on the company in 1932 by the banks which had lent it money.

In the light of these contentions let us consider briefly the history of the corporation and petitioner’s relation to it, with special emphasis, of course, on the facts involved in petitioner’s transfer of stock to the corporation in 1932.

Petitioner had complete control of the corporation from the beginning. This, in itself, is not decisive, cf. Pearl B. Brown, supra; T. Pierre Champion, supra; but it is nevertheless a significant fact which must not be lost sight of. On December 31, 1932, when the redemption took place, petitioner held 2,910 shares and the two other officers and directors 45 shares each. Exercising the complete control of the company’s policy which he did, petitioner found it convenient to borrow large sums from the corporation. At the end of 1929 his debt was $66,679.22, the cancellation of which in 1932, in lieu of the returned 843 shares, is here in question. This sum had risen to nearly $80,000 by the end of the next year, 1930, and had soared to over $95,000 by the end of 1931. Throughout this period the company’s earnings had been substantial, varying from over $26,000 in 1925 to nearly $35,000 in 1928. The next year saw a drop to $24,000, and a still further drop to $16,000 in 1930, which rose again to $19,000 in 1931, only to fall to a new low of $5,000 in 1932.

Throughout this period of the company’s substantial earnings and of large withdrawals by petitioner, very few dividends were declared. This is a fact of the first importance, for a survey of the cases clearly shows that the regularity of cash dividend distributions has been more than once dwelt upon by this Board and the courts as demonstrating that a particular stock redemption did not have a dividend character. Cf. Henry B. Babson, supra, at pages 861-870; T. Pierre Champion, supra: “Such a record is not compatible with a studied intent to avoid tax.” (P. 1320.) Here only two formal cash dividends were made, the one a 10 percent dividend of $30,000 on December 10, 1929, and the other a 3 percent dividend of $9,000 on December 31, 1932. The accumulated surplus as shown on the company’s books was $65,167.91 by December 31, 1932. However, the minutes of the board of directors of the corporation on December 31, 1982, state definitely that the company had “a surplus in excess of the purchase price of said shares”, which was $66,679.22. The only dividend other than the two already mentioned was the “informal” dividend of $13,388.34 entered on the books in 1932, but as of December 31, 1930, the reason for which has already been set out. It was a withdrawal by petitioner, treated by the Commissioner as a taxable dividend, conceded by petitioner to be such, and, therefore, afterwards entered on the books as an “informal” distribution.

The petitioner, who was a majority stockholder, and to all intents and purposes sole stockholder, made a practice of availing himself during the period from 1926 to 1932 of the accumulated earnings of the corporation by the indirect method of borrowing, and borrowing without even the formality of interest paid on the open account or on such part of his debt as was covered by notes. At the same time we see the company possessed on December 31, 1932, of a substantial surplus, but making very few distributions of it by way of cash dividends. At this juncture, on December 31, 1932, petitioner surrendered 843 shares of his stock to the company and had his 1929 debit balance of $66,679.22 canceled. He had owned 2,910 shares of a total 3,000; he now owned 2,067 of a total 2,157. His position as majority stockholder had not changed materially.

With regard to the contention of petitioner that the transaction directly involved here was solely motivated by pressure from the banks, these facts are pertinent.

At the end of 1930 and again at the end of 1931 the company had no outstanding indebtedness. In February 1932 it obtained a loan of $25,000 from a Baltimore bank and another loan of the same amount from another Baltimore bank in May. Notes were given by the company for these loans, which petitioner endorsed. No pressure for repayment was made by the banks in the summer of 1932, but, petitioner testified, the Equitable Trust Co., which held one of the notes, called him up several times in the fall of that year and asked for payment. The note payable to this bank was, accordingly, curtailed by $5,000 in November and renewed. It was paid off in March 1933, and the other note, payable to the Union Trust Co., was paid in May, so that after May 1933 the company owed no money. It borrowed no more until November 1933. The only evidence of any “pressure” being brought to bear by the banks on the company is petitioner’s testimony that one of the banks called him up several times, and that it regarded unfavorably his large debt to the company. Petitioner, it should be recalled, was endorser on the company’s notes, and was himself solvent, and considered the company solvent without regard to his indebtedness. There is no evidence of any demand for the reduction of capital, nor is it shown how the company’s financial condition would be bettered by such a reduction. We are unable to see how the company was so financially distressed in 1932, able as it was to pay off its loans out of earnings in 1933, that it would have found it necessary to heed the bank’s indefinite suggestions in 1932. In support of this argument, petitioner relies strongly on Harry A. Koch, supra. The following quotation from our opinion in that case sufficiently well states the facts and indicates the wide divergence of the situation there considered from that present here.

The purpose is made clear by the evidence. In 1928 the corporation owed the First National Bank of Omaha about $149,000 on loans. The bank was dissatisfied with the' financial statement rendered to support the loan and insisted that it be improved by a reduction of the corporation’s outstanding capital stock by $38,000. To comply with this demand, and for no other reason, the corporation adjusted its capital structure in the manner set forth in our findings, which change satisfied the bank in every particular and enabled the corporation to continue its line of credit with the bank.

The habit of petitioner’s withdrawing regularly large sums from the corporation, coupled with the sparseness of its cash dividends, notwithstanding an ample surplus in each year up to 1932; the failure to show any reason for the company’s contracting its capital account at a time when its charter amendment might suggest, on the contrary, an expansion of the business; the failure to show any business advantage to the company from such a redemption; the failure to show any serious, or even any financial embarrassment other than such as might result from a general reduction of its business, a situation readily attributable to the general economic depression; the failure to show any pressure by its bank creditors to alter the capital structure of the company or its inability to meet its obligations to them without such alteration; the failure, in short, on the part of petitioner to put forward any convincing affirmative reason for the redemption other than the motive apparent on the record of tax evasion, convinces us that the redemption of the 843 shares of the Nat wick Co.’s stock on December 31, 1932, was essentially equivalent to a taxable dividend within the meaning of section 115 (g) and should be, accordingly, so treated.

Reviewed by the Board.

Judgment will be entered under Rule 50.

       SEC. 115. DISTRIBUTIONS BY CORPORATIONS.
      (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.
      (b) Source of Distributions.—For the purpose of this Act every distribution is made out of earnings or profits to the extent thereof, and from the most recently accumulated earnings or profits. Any earnings or profits accumulated, or increase in value of property accrued, before March 1, 1913, may be distributed exempt from tax, after the earnings and profits accumulated after February 28, 1913, have been distributed, but any such tax-free distribution shall be applied against and reduce the basis of the stock provided in section 113.
      (c) Distributions in Liquidation.—Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock. The gain or loss to the distributee resulting from such exchange shall be determined under section 111, but shall be recognized only to the extent provided in section 112. In the case of amounts distributed in partial liquidation (other than a distribution within the provisions of section 112 (h) of stock or securities in connection with a reorganization) the part of such distribution which is properly chargeable to capital account shall not be considered a distribution, of earnings or profits within the meaning of subsection (b) of this section for the purpose of determining the taxability of subsequent distributions by the corporation.
      *******
      (g) Redemption of Stock.—If a corporation cancels or redeems its stock (whether or not such stock was issued as a stock dividend) at such time and in such manner as to make the distribution and cancellation or. redemption in whole or in part essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption' or cancellation of the stock, to the extent that it represents a distribution of earnings or profits accumulated after February 28, 1913, shall be treated as a taxable dividend.
      (h) Definition of Partial Liquidation.—As used in this section the term “amounts distributed in partial liquidation” means a distribution by a corporation in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock.

         Henry B. Babson, supra; Pearl B. Brown, Executrix, supra; T. Pierre Champion, 27 B. T. A. 1312; affd., 78 Fed. (2d) 513 (C. C. A., 6th Cir) Cir.) ; Girard Trust Co. at al., Administrators, 32 B. T. A. 926; August Horrmann, 34 B. T. A. 1178 ; Harry A. Koch, 26 B. T. A. 1025; Alfred A. Laun, 26 B. T. A. 764; Commissioner v. Rockwood, 82 Fed. (2d) 359, affirming B. T. A. (C. C. A., 7th Cir.) ; Salt Lake Hardware Co., 27 B. T. A. 482; Commissioner v. Cordingly, 78 Fed. (2d) 118 (C. C. A., 1st Cir.), affirming B. T. A.; Commissioner v. Quackenbos, 78 Fed. (2d) 156 (C. C. A., 2d Cir.), affirming B. T. A.; James A. Connelly, 30 B. T. A. 331, appeal dismissed February 26, 1936 (C. C. A., 3d Cir.) ; Commissioner v. Ahlborn, 77 Fed. (2d) 700, affirming B. T. A. (C. C. A., 3d Cir.) ; Parker v. United States, 88 Fed. (2d) 907 (C. C. A., 7th Cir.), reversing District Court; Louis Rorimer, 27 B. T. A. 871; Robert H. Meyer, 27 B. T. A. 44; Alfred E. Fuhlage, 32 B. T. A. 222; George A. Lembcke, 33 B. T. A. 700; Rudolph Boehringer, 29 B. T. A. 8; William C. Huntoon, 14 B. T. A. 459; James D. Robinson, 27 B. T. A. 1038; affd., 69 Fed. (2d) 972 (C. C. A., 5th Cir.) ; Shelby H. Curlee, Trustee, 28 B. T. A. 773; affd., subnom. Randolph v. Commissioner, 76 Fed. (2d) 472; certiorari denied, 296 U. S. 599; George Hyman, 28 B. T. A. 1231; affd., 71 Fed. (2d) 342; certiorari denied, 293 U. S. 570; Elwood W. McGuire, 32 B. T. A. 1075 ; affd., 84 Fed. (2d) 431; certiorari denied, 299 U. S. 591; Brown v. Commissioner, 79 Fed. (2d) 73, affirming B. T. A. (C. C. A., 3d Cir.) ; Annie Watts Hill, 27 B. T. A. 73; affd., 66 Fed. (2d) 45 (C. C. A., 4th Cir.) ; Leopold Adler, 30 B. T. A. 897; affd., 77 Fed. (2d) 733 (C. C. A., 5th Cir.); C. A. Goding, 34 B. T. A. 203; Arthur M. Godwin, 34 B. T. A. 485.


author: Kern :

text:
    H. F. Asmussen, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 78589.
    Promulgated November 16, 1937.

      A. W. Clapp, Esq., for the petitioner.

      I. M. Tullar, Esq., for the respondent.
   OPINION.

Kern :

Since respondent has not referred in any way in his brief or request for findings of fact to any issue raised by the affirmative allegations contained in his amended answer, we will consider that the only issue presented by this case for our determination is whether or not the purchase from the petitioner by the West Publishing Co. of 350 shares out of the 3,520 shares of the preferred stock of the company, issued to him as a stock dividend on August 1, 1932, was essentially equivalent to the payment to him of a taxable dividend under section 115 (g) of the Revenue Act of 1932.

The legislative background, of this section of the act was discussed by us in the case of Pearl B. Brown, Executrix, 26 B. T. A. 901, and a somewhat exhaustive discussion of the decided cases interpreting this section was made in the case of J. Natwick, 36 B. T. A. 866. While it is apparent that the principal purpose of this section was to prevent tax evasion by means of the redemption by a corporation of a stock dividend issued by it, it is also apparent from the general language used in the section of the act under consideration, and the cases which have construed it, that the facts in each case must be carefully considered. However, the cases indicate that certain considerations are helpful in determining whether or not this section is applicable to the facts of the case before us.

Where it is apparent that there is a “continuing plan” or “artifice” to evade taxation by means of the issuance of the stock dividend and its cancellation or redemption, we may be justified in holding that section 115 (g) of the Revenue Act of 1932 is applicable. Pearl B. Brown, supra; Henry B. Babson, 27 B. T. A. 859. Another significant fact in determining whether or not this section is applicable is the pro rata distribution and redemption of a stock dividend. Regulations 77, art. 629. In such a determination we may also properly consider whether or not the corporation has paid substantial cash dividends. Henry B. Babson, supra; J. Natwick, supra. We may also consider the time intervening between the issuance of the stock dividend and its redemption, Hyman v. Helvering, 71 Fed. (2d) 342; Robinson v. Helvering, 69 Fed. (2d) 972, and also whether or not there is complete control by petitioner of the corporation to which he was indebted. W. C. Huntoon, 14 B. T. A. 459; George Hyman, 28 B. T. A. 1231. Another proper consideration is whether the corporation had cash on hand with which to pay a cash dividend. Robert R. Meyer, 27 B. T. A. 44.

However, one of the most important considerations in determining whether or not this section applies to the declaration of stock dividends and their subsequent redemption or cancellation, is whether or not both the declaration and the redemption or cancellation are dictated by legitimate reasons connected with the business of the corporation. T. Pierre Champion, 27 B. T. A. 1312; Alfred E. Fuhlage, 32 B. T. A. 222; George A. Lembcke, 33 B. T. A. 700. This is particularly important since the existence of a legitimate business reason on the part of the corporation for the issuance of a stock dividend, and its subsequent redemption or cancellation, would clearly indicate the nonexistence of a “continuing plan” or “artifice” to evade taxation mentioned above.

In the instant case it is apparent that the purpose of the West Publishing Co. in declaring a preferred stock dividend in 1932 was to reduce the value of its common stock to a figure which would make it available for purchase by its younger executives and employees, and to furnish to such executives and employees who already owned common stock of the corporation a form of security which could be used by them in making a purchase of the common stock, thus facilitating the ownership of the common stock of the corporation by those who were actively engaged in its management and operation. Obviously, this was a legitimate business purpose. It is equally apparent that the purpose of the acquisition by the corporation of a certain part of the preferred stock dividend involved in this case, and its .consequent redemption or cancellation, was to make available to two employee associations, described in the findings of fact herein, a profitable form of investment for the funds of these associations. It is also obvious that this constituted a legitimate business purpose.

In view of these facts, and in view of the absence of any “continuing plan” or “artifice” to evade taxation, the fact that redemption of the preferred stock by the corporation was not pro rata and involved only a relatively small amount of the preferred stock dividend, the fact that there had been, over a long period of years, substantial cash dividends paid by the corporation to its common stockholders, the fact that the petitioner did not have complete control over the corporation and was not indebted to it, and the further fact that there was no showing that the corporation had on hand cash with which to pay a cash dividend, all impel us to the conclusion, in spite of the short time intervening between the issuance of the preferred stock dividend herein and its partial purchase by the corporation, that the stock dividend issued to petitioner by the West Publishing Co. on August 1, 1932, was not essentially equivalent to the payment to him of a taxable dividend under section 115 (g) of the Revenue Act of 1932.

Reviewed by the Board.

Judgment will be entered for the petitioner.


author: Kern : Leech,

text:
    Estate of Henry N. Brawner, Jr., Roger J. Whiteford and Edgar N. Brawner, Executors, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 82695.
    Promulgated November 16, 1937.

      Robert P. Smith, Esq., for the petitioners.

      C. A. Ray, Esq., for the respondent.
   OPINION.

Kern :

Issue (a) involves the right of decedent to deduct $400 paid in connection with the proposed purchase of an apartment house. The right to the deduction is premised upon the contention that decedent was extensively engaged in buying and selling real estate and in mating loans secured by real property. The petitioners rely upon section 23 (a) of the Revenue Act of 1932, which provides for the deduction of all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

As was said in the case of Austin D. Barney et al., Executors, 36 B. T. A. 446, “The decided cases touching upon what constitutes the carrying on of a business do not announce any comprehensive rule that can be readily applied’ to the varying facts that are presented in this class of cases.” It is generally recognized that “those who take the position of passive investors, doing only what is necessary from an investment point of view” are not carrying on a trade or business within the meaning of this section of the revenue act. However, those who are actively engaged in the enterprises in which they are financially interested may be considered as carrying on a business. Austin D. Barney et al., Executors, supra. It is also true that a person

actively and regularly engaged in buying and selling for profit, substantial quantities of securities,- or considerable numbers of real estate tracts, will be considered as carrying on a business with regard to such trading. L. T. Alverson, 35 B. T. A. 482; S. Bose Lloyd, 32 B. T. A. 887. In some cases the result of the taxpayer having made investments is that the taxpayer thereafter is engaged in one business, or many businesses, depending upon the character of the investments made, all within the meaning of said section of the act. Harvey H. Ostenberg et al., Administrators, 17 B. T. A. 738.

In the instant case decedent had in the year 1928 the sum of $1,-000,000 derived from the dairy and dairy products business available for investment, and from that date to and including the taxable year 1932 he invested approximately that amount in real estate and in real estate loans, having purchased during those years 174 pieces of real estate, but selling only one piece and exchanging one piece without gain or loss. In 1932 the gross rentals received by him amounted to $21,786.46. We must conclude from these facts that he was not engaged in the business of buying and selling real estate as a real estate broker, and, further, that he was engaged during these years in the business of managing rental property purchased by him as an investment.

The deduction claimed by him, however, and involved in this issue of the instant case, is not an item properly connected with his business of managing rental properties owned by him, but is, on the other hand, an item of expense incurred by him incident to a proposed investment; that is, a contemplated purchase by him of additional rental property. Therefore, we must conclude that it was not an ordinary and necessary expense paid or incurred during the taxable year in carrying on a trade or business, and as to this issue, we approve respondent’s determination.

Issue (b).

The attorney fees which are claimed as a deduction grew out of the litigation of decedent’s tax liability in 1921,1922, and 1923. During these years he was engaged in operating the milk and dairy business as a sole proprietorship. There can be no doubt that decedent was engaged in that business, and we are satisfied that the sum of $4,257.85 was paid out as attorney fees by decedent during the taxable year. In our opinion, this expenditure grew out of and proximately resulted from the milk and dairy business carried on by decedent and is deductible as an ordinary and necessary expense of that business. Caroline T. Kissell, 15 B. T. A. 1270; Kornhauser v. United States, 267 U. S. 145. Cf. First National Bank of Skowhegan, Maine, 35 B. T. A. 876, and cases cited.

Issue (c).

The amount of the depreciation deduction to which decedent is entitled depends upon the value of the improvements at 1415 K Street, 1ST. W., since the life of the building is not in dispute. Decedent valued the building at $125,000; the respondent valued it at $69,447.90, thereby reducing decedent’s deduction for depreciation $1,108.21, and increasing his rental income by the same amount.

Respondent’s determination being prima facie correct, decedent was under obligation to overcome this valuation by proving the value of the improvements in a different amount. His proof consisted of the testimony of his assistant, who described the building and the method used in valuing it. This witness testified that his allocation of cost to the improvements was based upon a personal inspection of the property in August 1931, upon consideration of the income-producing ability of the property, and upon the amount of the first trust. In order to support the opinion of this witness counsel endeavored to qualify him as an expert in valuing properties. We are not persuaded that his experience would justify us in considering him to be an expert or in relying on his valuation. Upon this issue. We, therefore, determine that decedent did not maintain the burden of proof, and respondent’s valuation and computation of depreciation will be adopted.

Issue (d).

Decedent has asserted Ms right to a further deduction as to 1982 income, either as a bad debt or as a loss. In the petition a slightly larger deduction is claimed as a loss, $21,558.12, or, in the alternative, that the amount is deductible as a bad debt. In his brief decedent reversed positions and contended that the deduction claimed, $21,530, is a bad debt, or, in the alternative, is a loss.

A brief summary of the pertinent facts will tend to clarify this issue. Decedent loaned $46,000 to McKeever & Goss on second trust notes and later advanced to them the sum of $4,103.33. Upon default, the makers of the notes and their endorser, R. L. McKeever, were sued and judgment was obtained for $21,680, including interest. The judgment could not be executed because of the bankruptcy of the individual and the failure of the firm without assets. Being unable to collect the judgment, decedent claimed that the difference between the judgment obtained and credits against it, of $4,000, which was not loaned, and of $1,250, an amount collected after judgment, represent a bad debt, or the loss sustained.

With regard to decedent’s contention that this proposed deduction should be allowed as representing a bad debt, respondent contends that there was no proper charge-off thereof made by decedent within the taxable year, as required by section 23 (j) of the Revenue Act of 1932.

When decedent crossed out the title “McKeever & Goss” on the account involved herein, and entered in pencil the title “Real Estate 1415 K Street, N. W.”, transferred the account from the notes and accounts receivable portion of his ledger to the real estate section thereof, and made the notation “Building bought in for $32,500, July 1931” and “Judgment for difference against R. L. McKeever worthless, bankrupt, no assets 1932”, it is our opinion that a proper charge-off of the account against McKeever & Goss, carried on decedent’s books was accomplished, conforming to the rules laid down in the following cases: Thomas J. Avery, 5 B. T. A. 812; George H. Fraser, 6 B. T. A. 991; O. S. Stanley Co., 13 B. T. A. 557; Poel & Kelly, Inc., 19 B. T. A. 1317; Jones v. Commissioner, 38 Fed. (2d) 550; Stevenson v. Commissioner, 43 Fed. (2d) 348.

It would seem clear that decedent, by the actions and notations mentioned above, and more fully set out in the findings of fact herein, evidenced the ascertainment of worthlessness of this account substantially as of the date of such ascertainment and within the taxable year, and effectively eliminated his claim against McKeever & Goss as an asset. However, article 23 (k)-3 of Regulations 94 provides as follows:

If mortgaged or pledged property is lawfully sold (whether to the creditor or another purchaser) for less than the amount of the debt, and the mortgagee or pledgee ascertains that the portion of the indebtedness remaining unsatisfied after such sale is wholly or partially uncollectible, and charges it off, he may deduct such amount (to the extent that it constitutes capital or represents an item the income from which has been returned by him) as a bad debt for the taxable year in which it is ascertained to be wholly or partially worthless and charged off. * * *

In view of this provision, it is therefore apparent that decedent could deduct as a bad debt only that portion of the worthless judgment against McKeever & Goss which constituted capital. Since there is no evidence in the record that any portion of the judgment representing interest has been reflected in decedent’s income tax returns, the amount of his capital represented in the account against McKeever & Goss is the sum of $46,000, plus $11.15 protest fees, plus the advancement of $4,103.33. To be credited on this is the sum of $1,250 received by him on this account by means of an attachment, November 7, 1932, and also the sum of $32,500 which is the amount for which the mortgaged property was sold.

It is, therefore, our conclusion on this issue that the claim of decedent for a deduction as a bad debt should be allowed in the sum of $16,364.48.

Reviewed by the Board.

Decision will be entered under Rule 50.

Leech,

dissenting: I dissent on the first point. It seems to me this record establishes the fact that the petitioner, during the taxable year, was in the business of owning and operating real estate; that as an ordinary and necessary expense of that business, he paid, during that year, the disputed $400, and, accordingly, is entitled to its deduction under the Revenue Act of 1932, section 23 (a).

Sternhagen and Arundell agree with this dissent.


author: Sternhagen:

text:
    Kauai Terminal, Limited, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 87664.
    Promulgated November 16, 1937.

      Montgomery E. Winn, Esq., for the petitioner.

      Arthur H. Fast, Esq., and Henry L. Young, Esq., for the respondent.
   OPINION.

Sternhagen:

1. The petitioner in 1933 deducted the $200,000 which it contributed to the cost of the new breakwater, the $17,517.93 which was the 1910 cost of construction of the old breakwater, and the $3,940.20, preliminary expenses incurred in preparing data and sending a representative to "Washington in the course of the investigation of the project. In disallowing the deduction the Commissioner said that the taxpayer “received in return a valuable asset, either tangible or intangible, adding to the value of its property, which, should be capitalized.” The taxpayer relies upon article 262 of Regulations 77.

The statutory provision under which the deduction must be considered is Revenue Act of 1932, section 23 (a), since there is no statutory provision for the deduction by corporations of charitable and similar contributions such as there is in section 23 (n) in the case of individuals. It is not because the contribution was made to the United States that the petitioner defends the deduction, but because it was an ordinary and necessary expense of carrying on its trade or business; and more particularly, as it claims, because it was a donation which bore a relation to. its business and was made with a reasonable expectation of a financial return commensurate with its amount.

In support of its contention it relies upon earlier decisions, which deal with voluntary expenditures made gratuitously under circumstances involving peculiar business considerations. In each case the amount was in truth a donation—that is, nothing was received from or promised by the donee in return, the expected benefits being an indirect or incidental result. This, however, is not true in the present case. The amount paid by the petitioner was not a donation, but was the condition imposed by the United States for the construction of the breakwater. Another condition was the conveyance by the petitioner of the existing breakwater. Under these circumstances it may be seriously doubted whether article 262 of Regulations 77 is at all in point. That article appears in the regulations following article 261, both being under section 23 (n) of the statute, which relates entirely to “charitable and other contributions” in the case of individuals. From its location in the regulations, it is clear that it deals only with such donations by corporations as are comparable with the charitable contributions by individuals deductible under the statute. As to such comparable donations, the article describes those which may properly be regarded by a corporation as ordinary and necessary expenses of carrying on its trade or business. See Old Mission Portland Cement Co. v. Helvering, 293 U. S. 289; Helvering v. Evening Star Newspaper Co., 78 Fed. (2d) 604; certiorari denied, 296 U. S. 628. Unless, therefore, an expenditure made by a corporation is such as would, if made by an individual, be deductible as a charitable contribution, article 262 is wholly irrelevant.

The first question then is whether this expenditure made by the petitioner is like a deductible charitable contribution made by an individual. The evidence shows that the primary consideration which moved the petitioner in this expenditure was not that of a charitable gift to the United States for the general welfare of the community, but was the increase of its own profit through the reduction of its expenses and the improvement in the efficiency of its operations. While something was said about the prospect of reducing transportation rates for the benefit of the community, this was but an incidental and indirect consequence. Had the petitioner been an individual, it would have had no better standing to claim, under section 23 (n), the deduction of a charitable contribution than it did as a corporation, and the same question would have been present, namely, whether an amount paid to the United States toward the construction of a breakwater under the circumstances set forth is deductible as an ordinary and necessary expense of carrying on a trade or business. This question we think must be answered in the negative. The expenditure was one calculated to result in a long standing direct business advantage to the petitioner, the effect of which was not alone felt in the year when made but was to carry on indefinitely into the future. So far as the taxpayer was concerned, although it did not own the breakwater and had no tangible capital asset as a result of its expenditure, the benefit resulting from the expenditure was as desirable as if the breakwater had become its own (perhaps more so, since the Government was to carry the burden of maintenance); and this benefit was not only immediate but was to extend into the indefinite future. Under such circumstances, it can not reasonably be said that the amount was an ordinary and necessary expense to be deducted in a single year.

It is suggested that since the taxpayer owns no asset as the result of its expenditure, there is nothing for it to capitalize; and since the amount must be charged off, its deduction should be permitted. This amounts to saying that all expenditures must be classified either as capital or current expense, and if not the former, they must be deductible. This reasoning has been considered before and rejected. Connally Realty Co., 31 B. T. A. 349; affd., 81 Fed. (2d) 221. Claiming under section 23 (a), the taxpayer must bring the expenditure within the language of the statute, and this is not done by the indirect method of showing that the amount can not reasonably be capitalized.

For the Commissioner, several cases are cited which support his view, Cripple Creek Coal Co. v. Commissioner, 63 Fed. (2d) 829; Colony Coal & Coke Corporation v. Commissioner, 52 Fed. (2d) 923; Gauley Mountain Coal Co. v. Commissioner, 23 Fed. (2d) 574. In the Cripple Greek case the court held that an amount paid by a coal company to a railroad company as a part of the cost of a spur track owned by the carrier was not deductible as an expense. In the Gauley Mountain case, which arose under the excess profits tax, the court held that a similar amount was properly to be treated as an item of invested capital, from which it rationally followed, in the Colony Goal case, that it was not deductible as an expense.

The foregoing reasoning leads as well to the conclusion that the $17,517.93, cost of the original breakwater, is likewise not to be regarded as an ordinary and necessary expense in 1933, when the breakwater was conveyed to the United States.

The $3,940.20 was accounted for by the taxpayer as a preliminary cost of the breakwater project, and its deduction was claimed upon the same grounds as the other two items. The deduction was, therefore, likewise properly disallowed.

2. The taxpayer, in accordance with its regular method of accounting, deducted the annual fire insurance premium in its entirety in the year when paid. For the year 1933 the Commissioner disallowed half of the premium paid in that year because it covered insurance going into the following year. If this were a single nonrecurring expenditure by the taxpayer, there might be some support for the Commissioner’s disallowance; but the taxpayer had consistently adopted this accounting treatment, which seems to have been in accordance with the requirements of the Interstate Commerce Commission’s regulations, “Classification of Operating Revenues and Operating Expenses of Steam Roads” (issue of 1914). This requires that such insurance premiums shall be treated by the carrier as operating expense. While it can not be said that an insurance premium which covers a period of more than one year may, as a general rule, be deducted in its entirety in the year of advance payment, Higginbotham-Bailey-Logan Co., 8 B. T. A. 566, the present case deals only with a one-year premium such as has habitually, in accordance with an approved and regularly adopted accounting method, been charged off and deducted each year in the year of payment.. Under these circumstances the amount paid is clearly an ordinary and necessary expense of carrying on the trade or business, and there is no justification for disallowing it and requiring in its stead an apportionment which year after year will reach substantially the same result. The Commissioner’s determination as to this item is reversed.

Judgment will be entered under Rule 50.

       Art. 202. Donations by Corporations.—Corporations are not entitled to deduct from gross income contributions or gifts which individuals may deduct under section 23 (n). Donations by a corporation for purposes connected with the operation of its business, however, when they are made to charitable institutions, hospitals, or educational institutions and result in a direct benefit to the employees of the corporation or their dependents are a proper deduction as ordinary and necessary expenses. Donations which bear a relationship to the corporation’s business and are made with a reasonable expectation of a financial return commensurate with the amount of the donation are'allowable deductions from gross income. For example, a street railway corporation may donate a sum of money to an organization intending to hold a convention in the city in which it operates, with the reasonable expectation that the holding of such convention will augment its income through a greater number of people using the cars. Sums of money expended for lobbying purposes, the promotion or defeat of legislation, the exploitation of propaganda, including advertising other than trade advertising, and contributions for campaign expenses, are not deductible from gross income.

       SEC. 23. DEDUCTIONS FROM GROSS INCOME.
      In computing net income there shall be allowed as deductions:
      (a) Expenses.—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; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition, to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.

        Poinsett Mills, 1 B. T. A. 6; Holt-Granite Mills Co., 1 B. T. A. 1246; Anniston City Land Co., 2 B. T. A. 526 ; Superior Pocahontas Coal Co., 7 B. T. A. 380; Sugarland Industries, 15 B. T. A 1265 : Corning Glass Works v. Lucas, 37 Fed. (2d) 798; certiorari denied, 281 U. S. 742.