text:
    The Rodeo-Vallejo Ferry Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 36411, 48528.
    Promulgated November 25, 1931.

      Neil E. Larkin, Esq., for the petitioner.

      John D. Kiley, Esq., for the respondent.
   OPINION.

Van Fossan:

The statute (section 234 (a) (7) of the Bevenue Act of 1924) provides for “ a reasonable allowance for the exhaustion, wear and tear of property used in a trade or business, including a reasonable allowance for obsolescence.” In Loewers Gambrinus Brewery v. United States, 282 U. S. 638, Mr. Justice Butler states, “ the language of section 234 (a) (7) is broad enough to include all obsolescence from whatever cause.” And in Burnet v. Niagara Falls Brewing Co., 282 U. S. 648, the same learned justice said:

* * * The word [obsolescence] is much used, and its meaning depends upon and varies with the connections in which it is employed. It has been said to be “ the condition or process by which units gradually cease to be useful or profitable as a part of the property, on account of changed conditions.” Obsolescence is not necessarily confined to particular elements or parts of a plant, the whole may become obsolete. Obsolescence may arise as the result of laws regulating or forbidding the particular use of the property as well as from changes in the art, the shifting of business centers, loss of trade, inadequacy, or other causes.

In the same case the court observes:

* * * The provision is general and applied alike to all taxpayers; its purpose is to guide the ascertainment of taxable income in each year. It is a familiar rule that tax laws are to be liberally construed in favor of taxpayers. [Citing cases.]
It would be unreasonable and violate that canon of- construction to put upon tbe taxpayer the burden of proving to a reasonable certainty the existence and amount of obsolescence. Such weight of evidence as would reasonably support a verdict for a plaintiff in an ordinary action for the recovery of money fairly may be deemed sufficient. Neither the cost of the obsolescence nor of accruing exhaustion, wear, and tear that is properly chargeable in any period of time can be measured accurately. A reasonable approximation of the amount that fairly may be included in the accounts of any year is all that is required. In determining the proper deduction for obsolescence, there is to be taken into consideration the amount probably recoverable, at the end of its service, by putting the property to another use or by selling it as scrap or otherwise. There is no hard and fast rule, as suggested by the government, that a taxpayer must show that his property will be scrapped or cease to be used or useful for any purpose, before any allowance may be made for obsolescence.

There is nothing mysterious about obsolescence. It is a factor widely present in all business. Its existence is a fact to be established as other facts are established and when proven its allow-ability as a deduction is authorized by law.

Viewing the situation before us we have no difficulty in concluding that it is one in which a deduction for obsolescence might be proper. The intervention in petitioner’s economic world of the new means of transportation across the Strait foretold the end of the economic .usefulness of petitioner’s ferry and the equipment used therein. The normal processes of exhaustion, wear and tear were supplemented and superseded by a very positive and actual factor in competition with which the ferry could not hope to be successful. The amount by which this factor hastened the economic demise of petitioner’s equipment, less salvage value, is the measure of obsolescence.

It is our opinion that even before the actual signing of the contracts in 1925 petitioner was justified in concluding that upon the opening of the bridge for traffic May 31, 1927, its ferry would be entirely obsolete. With the obsolescence of the ferry as a means of local transportation established as a fact certain to occur, the approaching date of the obsoleteness for petitioner’s purposes of the equipment used therein was likewise fixed. Knowing these facts and facing the eventuality of finding some other use for its equipment or of selling the same to the best advantage possible in the premises, neither of which avenues might return petitioner’s investment without loss, petitioner took appropriate steps to minimize such probable loss and to claim an obsolescence deduction in its tax return. It offered its boats for sale as of May 31, 1927. Sale of one boat was accomplished in 1927 and of the other in 1929. These sales, having occurred before the hearing in this case, remove all speculation as to the salvage value of the equipment and of the fact of economic loss.

Having concluded that petitioner was entitled to claim some amount on account of obsolescence in addition to normal depreciation, the only problem is the reasonably accurate estimation of the amount to which it was so entitled.

Though petitioner’s ferry became obsolete in 1927 and its facilities were as to it also obsolete, the two boats were still useful to a degree if an appropriate place for their utilization could be found. They were not of a type and construction to be used with safety in the lower Bay, hence, their only market was for use in a location comparable with petitioner’s ferry. Such a use was found for one boat in 1927 and for the other in 1929, but the proceeds from the sale were not sufficient to wipe out the unrecovered investment in the boats.

The established facts are that on January 1, 1926, the basic cost of the “ Issaquah ” was $86,516.84, against which there had been allowed depreciation in the amount of $18,554.74, making a net unrecovered cost of $67,962.10. ' The salvage value of the “ Issa-quah ” in 1929 was $20,000. The net cost recoverable during the period January 1,1925, to May 31, 1927, was $47,962.10. Respondent has allowed $5,741.14 as depreciation during 1925 and 1926, leaving an unrecovered amount of $42,220.96. This amount petitioner was entitled to recover over the period January 1, 1925, to May 31, 1927. This sum should be prorated over such period and covers the additional allowance on account of obsolescence.

The cost of the “ San Jose ” on May 6, 1925, the date of acquisition, was $128,626.82. The net salvage value ($65,000 less $20,226.14) was established by sale in August, 1927, at $44,773.86. The net cost recoverable through the period May 6, 1925, to May 31, 1927, was $83,852.96. Respondent has allowed during the period May 1, 1925, to December 31, 1926, the sum of $17,021.08 as depreciation, leaving an unrecovered amount of $66,831.88 which petitioner was entitled to recover during the period May 6, 1925, to May 31, 1927.

There remain for consideration two small items. The first, a gift of $50 to an employee on the occasion of his marriage, is disallowed. The evidence shows this to be a gift and not an ordinary and necessary expense. The second, a payment to Victory Highway Association, is allowed. The motive behind the payment was purely a business one and the payment actually resulted in increasing traffic over petitioner’s ferry.

Reviewed by the Board.

Decision will be entered wnder Bule 50.

Morris, SterNhageN, and Murdock dissent.


source: Caselaw Access Project

author: 'MoReis:

license: Public Domain

text:
    C. R. C. Law List Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 21717.
    Promulgated November 25, 1931.

      Alfred G. Frodel, Esq., and Dean Hill Stanley, Esq., for the petitioner.

      J. Arthur Adams, Esq., and Frank A. Surine, Esq., for the respondent.
   OPINION.

'MoReis:

At this stage of the proceeding, two issues having been placed in abeyance under Rule 62 of the Board, we are concerned solely with the petitioner’s contention that it is entitled to and should have been classified as a personal service corporation.

Section 200 of the Revenue Act of 1918, in so far as applicable, provides:

That when used in this title—
*******
The term “ personal service corporation ” means a corporation whose income is to be ascribed primarily to the activities of the principal owners or stockholders who are themselves regularly engaged in the active conduct of the affairs of the corporation and in which capital (whether invested or borrowed) is not a material income-producing factor; * ⅜ *

The petitioner contends that 96.8 per cent of its outstanding capital stock was owned by stockholders who were regularly engaged in the active conduct of its aifairs during the years in controversy and it includes the following in its determination:

In fact, the only stockholders which it does not contend were so engaged are S. G. Taylor, S. F. Swayne, Francis E. Fitch, Inc., and E. A. Mayriss, owning in the aggregate the remaining 3.20 per cent of its capital stock.

We have found as a fact that Samuel Taylor, deceased, one of its principal stockholders (to the extent of 64.75 per cent), M. J. Keys, W. D. Eyre, and H. A. Fitzgerald, owning in the aggregate 68.30 per cent of the capital stock, devoted their entire time to and were actively engaged in the conduct of the petitioner’s business, but we disagree with the petitioner as to the remainder of its classification because, in the first place, with the exception of Cornelia Fitch, they were not “ principal ” stockholders and, furthermore, they failed to meet other requirements of the statute.

With respect to Cornelia K. Fitch, a stockholder to the extent of 25 per cent, we have found as a fact that she was a woman between 60 and 65 years of age and, that although a director during the years in question, she was not an officer nor did she hold any position of employment with the petitioner and she received no compensation therefrom.

That she was a principal stockholder is clear; see Robisohon & Peckham Co., 11 B. T. A. 483, wherein we held that a 20.8 per cent owner of stock was a “ principal ” stockholder, but she was not regularly engaged in the active conduct of the affairs of the corporation within the meaning of the statute — certainly not in the sense that any portion of its income might be ascribed to her activities. Her activities, if such they may be termed, amounted to nothing more, so far as the record shows, than those of any other stockholder who might own a 25 per cent interest in a business.

American Lawyers Co., 21 B. T. A. 370, relied upon by the petitioner, is distinguishable from the instant case upon the facts.

We are, therefore, of the opinion that the petitioner fails to satisfy the requirements of the statute for classification as a personal service corporation, and we need not discuss the question of whether capital is a material income-producing factor. Brady Theatre Co. v. Commissioner, 42 Fed. (2d) 181.

Reviewed by the Board.

Decision will he entered wider Bwle 62 (c).


author: Goodrich :

text:
    National Packing Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 31668, 33971.
    Promulgated November 27, 1931.

      J. A. Howell, Esq., and J. H. Devine, Esq., for the petitioner.

      O. H. Gwl, Esq., for the respondent.
   OPINION.

Goodrich :

The first issue in this proceeding concerns the basis for computing depreciation for all the years here in question on the de-preciable assets acquired by petitioner at the time of its organization. As of January 1, 1922, petitioner entered these assets on its books at values based on the appraisal made August 1, 1921. This appraisal, probably made for insurance purposes, purports to be based upon costs of reproduction, new', both for the buildings and for the machinery and equipment, and from these reproduction costs a “ depreciated value ” ivas computed. But, neither in the appraisal itself' nor in the other evidence in the case, does it appear that the theoretical values set up in the appraisal are the fair market values of the various assets at that time, and therefore the appraisal is not determinative of those values. The appraisal was made at a time when, the evidence shows, there were other idle canneries in the vicinity, and only about a month after the assets appraised had sold at public sale ■where there ivas open bidding, at $100,000. The value of the assets when acquired by petitioner is a question of fact and can not be determined by this theoretical computation, even though the computation starts with a reproductive value based upon cost of similar property. Market value is a definite thing and it may have no particular relation to replacement cost, and is in no wise determined by it. See Kinsman Transit Co., 1 B. T. A. 552; Valley Steamship Co., 1 B. T. A. 1107; Rockford Malleable Iron Works, 2 B. T. A. 817; Frost Manufacturing Co., 13 B. T. A. 802. On the whole record petitioner has failed to establish that the values at which the fixed assets were set up on its books were the fair market values thereof at the time it acquired them. The respondent’s determination is sustained as to this issue.

We think .it is clear that immediately after the transfer of the assets here in question to petitioner in exchange for its stock, the same persons who transferred the property were in control of the corporation, and therefore this case, as to the years 1924 and 1925, falls within section 204 (a) (8) of the ^Revenue Act of 1924, providing that the basis to the corporation shall be the same as it was to the transferor. However, since we have sustained respondent’s determination that the values of the fixed assets acquired by petitioner at the time of its organization were the same as the depreciated costs thereof to its predecessor, it is unnecesary to enlarge on this phase of the question.

In computing the allowance for depreciation on machinery and equipment respondent allowed 15 per centum per annum on old or secondhand items and 10 per centum per annum on items purchased by petitioner. There is no dispute concerning the rates of depreciation, the parties agreeing that these rates are adequate and reflect, as closely as may be, the depreciation sustained on these assets. However, respondent has treated as new machinery and equipment all purchases made by petitioner and computed depreciation thereon at the rate of 10 per centum, whereas the fact is that of such purchases at least 30 per centum consisted of secondhand items. The rate of 15 per centum should therefore be applied to 30 per centum of petitioner’s purchases, and the rate of 10 per centum to the balance.

The remaining issue is the valuation of petitioner’s inventory of January 1, 1921, which was substantially in excess of the closing inventory of the Kiesel Estate of December 31, 1921, although with some exceptions, the two inventories contained the same items. We have before us considerable testimony by competent witnesses bearing on the market prices as of January 1, 1922, of the items inventoried, corroborated to some extent by invoices and sales records of such .items at about that time, and we can not but conclude that some of the values assigned by the inventory of December 31, 1921, are erroneous, and that the values assigned by petitioner’s opening inventory are the market values of such goods at that time, with the following exceptions:

(1) The items of pickle stock, containers, and miscellaneous supplies which were described as Spoiled,” “ Old,” “ Not Good,” “ Smoked,” “ N. G.,” etc., in the closing inventory and there listed as without value should be held to have no value in the inventory of January 1, 1922. The testimony as to the values of these items is unsatisfactory. The witnesses, except Rudiger, had not seen these goods, and in testifying as to their value, presupposed the goods to be of standard quality and in good condition, which was not so. Rudiger, who made both inventories, was familiar with this stock. He had been examining, moving and reconditioning it and was in a better position than anyone else to determine its value. In making the closing inventory of the estate he determined that these goods were of no value, and, as any expenses added by petitioner to recondition and move the goods can not be included in determining their value on January 1, 1922, we see no reason to disturb his first valuation.

(2) Some items appear in the inventory of January 1, 1922, which were not included in the inventory of December 31, 1921. These discrepancies have not been satisfactorily explained. If the goods were on hand on January 1, they should have been there the day before; if they were purchased after January 1, they have no place in the inventory as of that date. Such items should be deleted from the opening inventory.

Judgment will be entered wnder Rude 50.


author: Lora:

text:
    Gulf Coast Irrigation Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Matagarda Canal Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Texas Irrigation Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Markham Irrigation Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 33694, 40081-40083, 41343-41346.
    Promulgated November 27, 1931.

      W. E. Barton, Esq., W. E. Davant, Esq., and J. L. Bloch, G. P. A., for the petitioners.

      Harold Allen, Esq., for the respondent.
   OPINION.

Lora:

The petitioners are claiming the right to deduct the depreciated cost of their pumping plants and 64 per cent of such cost of their canals and laterals ratably over the nine-year period commencing in 1919, on the ground that as of the beginning of the period it was known that either the raft would be removed or a channel cut around it, with the result that the assets would become obsolete to the extent stated. The respondent takes the view that it could not be foreseen until 1927 what effect the lowering of the level of the reservoir above the raft would have on the irrigation system. We think there was no justification for concluding earlier than 1923 that the work would be done.

The raft had been the direct cause of damage to adjacent property, particularly tillable land, at high water for a great many years prior to 1919 and although this was well known in the community, no effort appears to have been made prior to 19 10 to do anything about it. Between 1910 and 1919, the removal of the raft or the cutting of a channel around it was agitated to some unknown extent, but no specific action was taken until 1919. By that time citizens of the two counties above Matagorda County realized that, if the raft continued to increase in length, before many years it would have the direct effect of wholly,or partially destroying farm lands adjacent to the river in their counties the same as it had destroyed and was destroying property in Matagorda County. Realization of the necessity of doing something to avoid additional damage to their property prompted a meeting of citizens of the three counties in about 1919 to discuss the subject, with the result that a committee was appointed to petition the State legislature for assistance by exempting the counties from taxation for twenty-five -years to pay off a bond issue.

The efforts of the affected citizens to raise funds for the removal of the source of the damage were not confined altogether to the legislature. From 1919 until 1923 they endeavored to have the three counties float bond issues to provide funds for the work. Matagorda County had borrowed up to its legal limit and was unable to raise the money. A fair inference to be drawn from this condition of affairs is that the counties were without financial means to correct the eidl and by necessity were forced to look to the legislature alone for. aid.

The petitioners produced only one witness to testify on the question of when it became imminent that the raft would be removed or a channel cut around it. The pertinent parts of his testimony on direct examination follow:

Q. Now, I want to ask you when was the earliest time that a reasonable man, knowing the circumstances, could foresee that this raft would be removed either by being dredged out, or a new channel would be cut through to get away from the obstruction it was causing?
A. [LeTulle] You want to know when we could foresee that?
Q. The first time, yes.
A. Just as soon as it was agitated, the people that lived there in 1919 and 1920, as soon as they went to talking about removing it, we knew what effect it would have, for we know where the river was before, and know it would go back to it. Does that answer it?
Q. You said 1919 or 1920. I want you to say the first time. You have given two dates.
A. I would say 1919. I will cut out 1918.
Q. What period of 1919 would you say?
A. Well, I will say the first day of 1919 to make it exact.

It is apparent from this testimony that the opinion of the witness was based upon mere agitation for the accomplishment of something rather than a series of happenings which were bound to end in the removal of the raft. That he did not intend to have his testimony accepted as a positive statement that on January 1, 1919, it was imminent that the raft would either be removed or a channel dug around it. but rather at that time it was foreseeable that something would have to be done to prevent increased damage to property, a separate and distinct thing, is apparent from his testimony on cross-examination. Then, after testifying that he did not say ho knew in 1919 what the State legislature would do in 1923, he testiñed that he did say he “ could foresee something had to be done, and the raft had to be removed from the river, or a ditch cut around it to save the whole country there.”

The most that can be said of the evidence on this point is that by 1919 more interest was being shown in the removal of the raft than theretofore. Nothing aside from mild agitation occurred prior to 1919, and the sentiment for the project had not progressed to such an extent as to justify a conclusion that the demands of the agitators would be carried out at any time.

The record does not disclose when the citizens of the affected counties filed their petition or what the attitude of the members of the legislature ivas towards the project when it was presented. The committee conferred with members of the legislature about the matter for “ months and months.” On June 4, 1923, an act was passed granting the aid sought by the committee. It was not until then that it was imminent that the work would be done which would result in the damage to petitioner’s irrigation system.

The respondent contends that of the canals and laterals only the intake canals were affected by the lowering of the pool of water at the head of the raft. There is no evidence of record establishing the abandonment of any part of the canals and laterals, but the testimony is uncontradicted that the amount of water available each year after the removal of the raft was sufficient for only 27,000 acres as against 15,000 acres before that time, a reduction of 04 per cent in the efficiency of the irrigation system. It is now settled beyond question that obsolescence may be allowed for impairment of the efficiency or revenue-producing power of depreciable assets.

In Niagara Falls Brewing Co., 13 B. T. A. 1040, the petitioner’s claim for obsolescence of 84 per cent of the depreciated cost of a building and the machinery located therein because of their reduced use from an average of four times a week to once every two weeks was denied on the ground that “ a deduction may not be taken for obsolescence where the assets were continued in use in the business.” In its reversal of the Board’s decision, the Circuit Court of Appeals, 38 Fed. (2d) 217, made a distinction between obsolescence and •obsoleteness. It said:

The statute provides for obsolescence, and not for obsoleteness. Obsolescence may and does occur, resulting in an estate more obsolete, when less used or more neglected, without forthwith rendering it entirely obsolete, useless, and fit only to be abandoned.
* * * * * '' * sfe
If there be obsolescence, without obsoleteness, it is clear that Congress intended to permit the deduction of the amount for obsolescence without abandonment of the assets.

In affirming the Circuit Court’s decision the Supreme Court said:

There is no hard and fast rule, as suggested by the Government, that a taxpayer must show that his property will be scrapped or cease to be used or useful for any purpose, before any allowance may be made for obsolescence. 282 U. S. 658.

The parties are in agreement as to the depreciated cost of the assets. The petitioners used a number of pumping plants, but the record does not show the number located on each side of the river. The depreciated cost of such of the pumping plants as are shown under Rule 50 to have been located on the east side of the river should be spread over the period from June, 1923, to the close of 1927, and those on the west side a year longer. Sixty-four per cent of the depreciated cost of the canals and laterals, including the intakes, should be spread over the former period. These allowances are in lieu of such depreciation as has been allowed by the respondent for such periods.

The petitions filed herein raised the issue of whether the petitioners and the Ashby Mill and Warehouse Company were affiliated during all of the taxable years. In the briefs filed on behalf of the parties the issue is limited to the affiliation of petitioners for 1920 and 1921. While counsel for petitioners so stated the issue in one of the opening paragraphs of his brief, his argument and request for relief which followed are confined to the affiliation of the Gulf Coast Irrigation Company and the Markham Irrigation Company. Since so much of the issue raised by the petitions as pertains to the affiliation of the Ashby Mill and Warehouse Company with petitioners was not specifically waived by the petitioners, the original issue, limited to 1920 and 1921, will be regarded as still being before us.

Affiliation is being claimed under 240 (b) of the 1918 Act and 240 (c) of the 1921 Act on the ground that “ substantially all ” of the stock was owned or controlled by the same interests.

For the period up to February 21, 1921, affiliation is being claimed on the ground that an ownership of 85 per cent of the stock of the Markham Company by the owner of all but a negligible amount of stock of the Gulf Coast Company is within the term “substantially all ” as used in the statutes. No contention is made that the owner of such stock controlled any of the remaining stock of the Markham Company.

During 1920 and 1921, and on and after June 30, 1920, the Markham Company owned all of the capital stock of the Canal Company, the Texas Company, and the Warehouse Company, respectively. While the stock books of the Gulf Coast Company reflect a different ownership, the proof here is that until February 21, 1921, when the stock was sold to LeTulle, Harty actually owned until April 7,

1920, 99 per cent of the corporation’s capital stock and 99.5 per cent thereafter. During this period Harty also owned 85.26 per cent of the capital stock of the Markham Company. Of the other stockholders of the Gulf Coast Company only LeTulle held stock in the Markham Company. He owned four shares of stock of the former on and after April 7, 1920, and a qualifying share in the latter. The combined holdings of the two stockholders were never in excess of 85.3 per cent of the outstanding stock of the Markham Company. This percentage of stock ownership is insufficient to meet the statutory requirement of “ substantially all.” Peavey-Wilson Lumber Co. v. Commissioner, 51 Fed. (2d) 163. See Denunzio Fruit Co. v. Commissioner, 49 Fed. (2d) 41; Burnet v. Bank of Italy, 46 Fed. (2d) 629; Ice Service Co. v. Commissioner, 30 Fed. (2d) 230; United States v. Cleveland, P. & E. R. R. Co., 42 Fed. (2d) 413; Terre Haute, Indianapolis & Eastern Traction Co., 24 B. T. A. 197. In the Peavey-Wilson Lumber Co. case, supra, a stock ownership of 83.31 per cent in one corporation and 85.51 in another by the holders of 94.65 per cent of the stock of the petitioner was specifically held not to be substantially all.

Affiliation is being claimed for the remainder of 1921 on the ground that LeTulle owned all of the stock of the Gulf Coast Company and owned or controlled all of the stock of the Markham Company. The facts relied upon are (1) the election of LeTulle and Herder on January 31, 1921, as managers of the Markham Company; (2) the provisions of the agreement of February 28, 1921, appointing Herder agent and trustee for the purpose of operating the Markham, Matagarda and Texas Companies; (3) the terms of the agreement of June 7, 1921, as modified November 29, 1921, between LeTulle and the Union National Bank applying the net earnings of the Gulf Coast Company towards outstanding obligations of the Gulf Coast Company, and LeTulle’s and Harty’s debts to the bank, in the order named, and (4) the agreement of November 29, 1921, between LeTulle and the creditors and stockholders of the Markham Company, wherein LeTulle was given the management of the corporation for five years, with the right to exercise the voting rights of the stock during the period of his management.

The only material change in stock ownership of the Gulf Coast and Markham Companies in 1921 was the purchase on February 21, by LeTulle, of 990 shares of stock of the former company. On and after February 21 LeTulle instead of Harty owned all but less than one per cent of the stock of the Gulf Coast Company. This mere change of stock ownership within the group of stockholders of both corporations does not alter the situation as regards affiliation on the basis of stock ownership alone. Did LeTulle, then, control a sufficient amount of additional stock to meet the statutory test of “ substantially all ” ?

The appointment of Herder and LeTulle on January 13, 1921, as general managers of the Markham Company, with broad powers of management of the corporation’s affairs, is clearly distinguishable from control of stock required by the statute. This was nothing more than a substitution of officers with broader operating authority. Management of a business does not amount to stock control. Commissioner v. Hirsch & Co., 30 Fed. (2d) 645.

The agreement of February 28, 1921, appointing Herder agent and trustee to operate the.Markham, Matagarda and Texas Companies is of the same general character as the delegation of powers to Herder and LeTulle just referred to. The powers of management did not extend to the Gulf Coast Company and during the period in controversy Herder was not a stockholder of that corporation. Whether the agreement created a trust estate is not raised by either party. We are not referred to any evidence, aside from the instrument itself, giving Herder control over the stock of the corporations for which he was acting. The agreement specifies his powers as agent and trustee without directly or indirectly conveying any stock-voting rights. The terms of the agreement form no basis for holding that they gave Herder actual or legal control over stock held by any other stockholder.

Neither did the provisions of the agreement LeTulle. entered into on June 1, 1921, with the Union National Bank give him control over any stock. Of Harty’s stock of the Markham Company, 2,000 shares were then in the hands of the bank as security for a loan, and, so far as the record shows, the remainder of about 900 shares was in his possession, with all the rights that go with stock ownership. Other stockholders of the Markham Company were not affected, directly or indirectly, by the agreement until November 29, 1921, when it was modified so as to provide for the application of earnings of the Gulf Coast Company to the payment of liabilities of the Markham Company. If we were to assume that the agreement bad the effect of giving LeTulie control over all of Harty’s stock, the percentage of stock ownership and control in the hands of Le-Tulie would not exceed 85.3, which, as pointed out above, is hot-enough to satisfy the statute.

On and after November 29, 1921, the situation as respects control was materially different. By that time the financial affairs of the Markham Company had reached a point where only drastic action would save the corporation from going into the hands of a receiver. LeTulie prevented such a proceeding by guaranteeing the liquidation of the corporation’s debts within five years. In return for this valuable consideration, all of the other stockholders agreed with LeTulie and the corporation’s creditors to give LeTulie full and complete control over the activities of the corporation and to vote their stock under his direction. LeTulie promptly exercised the voting rights given him by causing the resignation of objectionable directors, including Harty, the principal stockholder, and the. election of others to fill their places on the board. The voting rights given LeTulie, based, as they were, upon a valuable consideration, were not mere proxies, but legally enforceable obligations for a period of five years. This binding agreement gave LeTulie control over such of the stock of the Markham Company as he did not own. See S. N. & C. Russell Manufacturing Co., 16 B. T. A. 501 and J. A. Folger & Co., 23 B. T. A. 210. On and after November 29, 1921, LeTulie owned 99.4 per cent of the stock of the Gulf Coast Company and owned or controlled all of the stock of the Markham Company, which, as hereinbefore stated, owned all of the stock of the other three corporations. Accordingly, we hold that on and after November 29, 1921, the petitioners and the Ashby Mill and Warehouse Company were affiliated.

Decision will be entered under Rule 50.


author: Smith :

text:
    Roy & Titcomb, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 29138.
    Promulgated November 27, 1931.

      Theodora B. Benson, Esq., for the petitioner.

      Masewell E. McDowell, Esq., and Frank B. ScKlosser, Esq., for the respondent.
   OPINION.

Smith :

The respondent contends that under our decision in Riggs National Bank, 17 B. T. A. 615, the petitioner must reduce the basis for the determination of gain or loss upon the sale of its stockhold-ings in the Nogales Electric Light & Power Company by the amount of the losses of that company during the period of affiliation, said losses having been used to reduce the petitioner’s net income for prior years.

In Riggs National Bank, supra, the taxpayer sustained a loss of $94,949.07 on its investment in a subsidiary bank upon the liquidation of the subsidiary. Prior to liquidation the subsidiary had an operating loss which reduced the taxpayer’s net income for the period of the taxable year 1922 during which the two banks were affiliated. The liquidation of the subsidiary bank was effected by the taxpayer taking over the assets of the subsidiary, said assets having a value at the time of $94,949.07 less than the cost of the Riggs National Bank’s investment in the subsidiary. We held that the deductible loss was the amount of the investment loss less the operating loss of the subsidiary bank for the first part of 1922. Cf. Shepard Co., 22 B. T. A. 1368. It is to be noted that the Riggs National Bank and the subsidiary bank were affiliated up-to the time the Riggs National Bank, in effect, absorbed the subsidiary — that event terminating the affiliation.

In the instant case the affiliated status of the petitioner and the Nogales Electric Light & Power Company ended with the year 1922. In 1923 the petitioner sold to outside interests its stockhold-ings in the Nogales Electric Light & Power Company. Prior to that event the affiliated status of the two companies had ceased.

On similar facts we distinguished Riggs National Bank, supra, in Manatee Grate Co. et ad., 22 B. T. A. 996, and held that, where stock purchased in 1918 by the parent company became worthless in 1924, in which year the two companies were not affiliated, the 1924 deductible loss of the parent company should not be reduced by losses of the affiliated company that had been used to reduce the net income of the parent company during the prior years when the two companies were affiliated. In Manatee Crate Co. et al., supra, we said:

* * * it has been held that the disposition of stock by a member of an affiliated group which results in termination of the affiliation may give rise to gain or loss, on the theory that the disposition occurred outside of the affiliated group. Remington Rand, Inc. v. Commissioner, 33 Fed. (2d) 77; Riggs National Bank, 17 B. T. A. 615; Obenchain-Boyer Co., 18 B. T. A. 293. In the Riggs National Bank case we cited the Remington Rand case with approval, but reached the conclusion that under the peculiar facts present in the Riggs case the amount of the loss would be limited by excluding the operating losses sustained by the subsidiary company during the period of affiliation. It appears that the Riggs Bank owned 100 per cent of the stock of the Hamilton Bank and by reason thereof filed a consolidated return in which the operating losses of its affiliated company, the Hamilton Bank, were used as an offset against the profits of the Riggs Bank. When within the year the Hamilton Bank was liquidated and the Riggs Bank took over its assets, we held that the Riggs Bank could not take a loss on the stock of the Hamilton Bank without first taking into account the losses o'f the Hamilton Bank of which it had already had the benefit for tax purposes.
In the instant case the King Company and the Conwell Company were not affiliated during the taxable year 1924 though they had been for several years prior thereto. The facts on which the affiliation was based in those prior years are not diselo'sed by the stipulation which is the basis for our decision. The 1924 Revenue Act permitted affiliation of two or more companies only when' there was a 95 per cent ownership of stock. The test under the Revenue Acts of 1918 and 1921 was ownership and/or control of substantially all o'f the stock of two or more companies, and this difference in the requirements of the several revenue acts may account for the fact that the companies were not held to be affiliated in 1924. In any event the liquidation of the Conwell Company occurred at a time when the two companies were not affiliated, and on the stipulated facts it is apparent that the King Company suffered a loss of its entire investment of $25,500 and this amount constitutes a deduction within the meaning_ of the Revenue Act of 1924.

This proceeding is on all fours with United Publishers Corporation v. Anderson, 42 Fed. (2d) 781. The facts are succinctly stated in the opinion, which in so far as pertinent here, is as follows:

In the period 1917-1921 the plaintiff acquired the entire capital stock of Journal of Commerce Company at an aggregate price of $180,226.50. During the year ending April 30, 1922, it advanced to this subsidiary $80,865.35. In May, 1922, it sold its entire holdings in the subsidiary to outside interests. The consideration received was $100,000, but as part of the bargain the plaintiff canceled and released the $80,865.35 debt owed by the subsidiary. In substance and effect, therefore, the net amount received on the sale of the shares was only $19,134.65.
It further appears that during the years ending April 30, 1919, to April 30, 1922, inclusive, the plaintiff filed consolidated income tax returns wherein were included the operations of this subsidiary. The total losses of the subsidiary for these four years had been deducted from the plaintiff’s gross income for these years.
In principle this case cannot be distinguished from Remington Rand, Inc. v. Commissioner of Internal Revenue, (C. C. A.) 33 F. (2d) 77, certiorari denied in 280 U. S. 591, 50 S. Ct. 39, 74 L. Ed. . It was there held that where a parent corporation sold its stockholdings in a subsidiary, the excess of the selling price over the cost of the stock was taxable as a profit realized by the parent. The fact that the parent had for several years filed consolidated returns was held immaterial, as was also Hie fact that the subsidiary had accumulated earnings during these years, which earnings had been included in the consolidated earnings and thus taxed. The government’s contention was upheld in both respects. Here we have the exact converse. Here the sale- of the stock was at a loss, and the operations, of the subsidiary had been conducted at a loss over the years when consolidated returns were filed. The taxpayer is therefore warranted in insisting: First, that upon the sale of the Journal of Commerce stock it suffered a loss of $161,091.85, to the same effect as upon ihe sale of any other property; and, second, that the fact that the Journal of Commerce Company’s operating losses had been taken advantage of by the plaintiff in its payment of taxes on the consolidated basis is of no consequence. •

The sale upon which the petitioner claims a deductible loss did not occur within the period of affiliation (see Farmers Deposit National Bank, 5 B. T. A. 520); nor did it terminate the affiliation (see Shepard Co., supra, and compare Canal-Commercial National Bank, 22 B. T. A. 541); it occurred after affiliation had terminated and the petitioner thereby sustained a deductible loss in the amount claimed. Manatee Crate Co. et al., supra; United Publishers Corporation v. Anderson, supra.

Judgment will be entered under Rule 50.


author: Trammell :

text:
    Hutchinson Coal Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 34939.
    Promulgated November 27, 1931.

      Arthur S. Dayton, Esq., for the petitioner.

      Elden A. MacFarland, Esq., and Arthur Ciarle, Esq., for the respondent. -
   ORINION.

Trammell :

On the hearing of this proceeding the petitioner abandoned issues 3 and 5 and has submitted the remaining five issues for decision. Under the first issue petitioner contends that the bar of the statute of limitations upon assessment and collection of the proposed deficiency took effect December 31, 1927, the date when the waiver dated December 18, 1926, Avas expressly agreed upon to terminate. It argues that by reason of the failure of the waiver to provide for an extension of the time beyond such date for any reason whatever, the assessment was outlawed.

The deficiency has been determined by respondent under authority of section 283 (a) of the Revenue Act of 1926, and the assessment is subject to the same provisions and limitations as in the case of a deficiency for 1926. The Revenue Act of 1926 provides :

Seo. 277. (b) The running of the statute of limitations provided in this section or in .section 278 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under subdivision (a) of section 274) be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or a proceeding in court, and for 60 days thereafter.
Sec. 278. (c) Where both the Commissioner and the taxpayer have consented in writing to the assessment of the tax after the time prescribed in section 277 for its assessment the tax may be assessed, at any time prior to the expiration of the period agreed upon.

There is no question as to the validity of the waiver of December 18, 1926, the previous waiver of January 19, 1926, having extended the time, so that the statute had not expired when the latter one Avas executed.

When the tvaiver in question was executed by petitioner these provisions of the law were in effect, and before the expiration date of that waiver agreed upon, respondent mailed to petitioner the final notice of deficiency here appealed from, and thereafter for 60 days Avas prevented under section 274 from making assessment of the tax, except under section 279 in case he believed that collection Avould be jeopardized by delay. Petitioner contends that assessment and collection of the proposed deficiency was jeopardized and that respondent should have proceeded to make an assessment in order to protect the tax. In respect of this contention we think it necessary merely to point out that the question as to whether collection of the tax Avas in jeopardy is, under section 279, one for determination solely by respondent in the exercise of his discretion, and we are precluded from finding that collection was jeopardized in the absence of a conclusion by him to that effect.

Petitioner has availed itself of the privilege of an appeal to this Board for redetermination of the deficiency, and the time for assessment is further extended under section 274 (a) until our decision has become final. We hold that assessment and collection is not barred.

Under the second issue, petitioner contends that the tax should not have been computed upon the basis of a consolidated return. The Revenue Act of 1921 provides under section 240 (e) for compulsory consolidation for tax purposes of affiliated corporations for. any taxable year prior to January 1, 1922, and subject to the same conditions as provided in the ReAmuue Act of 1918. The 1918 Act is also mandatory and provided in section 240 (b) that corporations shall be deemed to be affiliated through ownership of the stock or through control by the same interests.

The respectrre stockholdings in the two corporations here involved are set out in our findings, these showing that there was a minority holding of a trifle more than 10 per cent of the stock in one corporation and that the oAAmers of the majority of the stock in such corporation oAvned all of the stock in the other. The evidence.also discloses the relationship of the various stockholders, the common officers, except president, and common directors.

Petitioner has not sustained the burden of proving error on the part of the respondent in computing the tax upon a consolidated basis, and we do not agree with its insistence that the mandatory consolidation of two corporations for income-tax purposes, resulting in a greater amount of tax in the aggregate than if such tax were computed on the basis of separate returns, is a taking of property without due process of law in violation of the constitutional prohibition. In requiring compulsory consolidation of affiliated corporations for tax purposes Congress is within its authority. Trustees for Ohio and Big Sandy Coal Co. v. Commissioner of Interned Revenue, 48 Fed. (2d) 782.

Under the fourth issue petitioner contends that certain additional or minimum royalties paid during the taxable year represent ordinary and necessary expenses deductible in computing net income. These amounts have been treated by respondent as capital expenditures. The amounts in question represent sums paid by petitioner under the terms of certain leases as royalties in excess of those paid upon coal actually produced, these additional payments being made under minimum production requirements of the contracts obligating petitioner to pay royalties computed upon a certain amount of production whether this amount was reached or not, these additional royalties to be credited upon future production in excess of minimum requirements for such future year.

In this connection it has been held that royalties are rents and not the purchase price of minerals in place. They are payments required to be made for the continued use and enjoyment of the property rights to which title is not being acquired. The minimum amount is required to be paid each year, for the use, possession and enjoyment for that year, with the qualification or contingency that if in a future year the coal mined exceeded the. amount of the minimum required for such year, the excess of the minimum payment for a previous year, would be credited against coal mined in such year. If this were in fact an advance royalty, we think that the advance payment should be spread over the period or years when the coal is mined, but, as we pointed out in Jamison Coal & Coke Co., 24 B. T. A. 554, we do not so consider it. There are too many uncertainties and contingencies. At the time of the minimum royalty payment it could not be foretold whether the excess payment over actual production of the year could ever be availed of. We think that on the authority of the above decision, as well as our decision in the Bogle case, 5 B. T. A. 541 (affirmed by the Circuit Court of Appeals, 26 Fed. (2d) 771), the minimum royalties paid each year are deductible when paid. United States v. Biwabik Mining Co., 247 U. S. 116; Lynch v. Alworth-Stephens Co., 267 U. S. 364; Estate of Mary E. Cahill, 2 B. T. A. 875; Royal Collieries Co., 1 B. T. A. 369.

Under the sixth issue, petitioner contends for the right to a deduction by the Logan Mining Company of expenditures covering items of equipment which normally represent capital outlays but in the present case are shown to have been purchased and used merely to maintain normal production. This question. has been heretofore passed upon by the courts and by the Board and the allowance of such expenditures as expenses of business sustained. West Virginia-Pittsburgh Coal Co., 24 B. T. A. 234; United States v. Roden Coal Co., 39 Fed. (2d) 425; Marsh Fork Coal Co. v. Lucas, 42 Fed. (2d) 83; Commissioner v. Brier Hill Colliers, 50 Fed. (2d) 111. Upon authority of those cases we hold that the deduction of $12,693.07 should be allowed in recomputing the consolidated income of these two corporations.

Another issue, relating to depletion, was abandoned. The determination of the respondent with respect thereto is, therefore, affirmed.

Judgment will be entered under Rule 50.


text:
    Lucius N. Littauer, William Littauer, and Manufacturers Trust Company, of New York, N. Y., as Executors of the Last Will and Testament of Eugene Littauer, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 51858.
    Promulgated November 27, 1931.

      Fred Linus O arr oil, Esq., for the petitioners.

      John E. Marshall, Esq., for the respondent.
   OPINION.

Trammell :

In the pleadings the petitioners set forth nine assignments of error, upon the basis of which it is asserted that the respondent determined the deficiency in controversy. These alleged errors will be considered in the order stated in the petition.

1. The petitioners allege that the respondent erred in including in the gross estate 1,550 shares of stock in the Fonda Glove Lining Company at $60 per share instead of $50 per share, as returned by the executors. At the hearing respondent conceded the contention of the petitioners on this issue, and we have accordingly found that the fair value of this stock at the date of decedent’s death was $50 per share.

2 and 3. Under these assignments the petitioners allege that the respondent erred in including in the gross estate certain “ French securities ” at a valuation of $31,257.56 instead of $20,271, as returned by the executors, and in including in the gross estate certain “ British securities ” at $169,032.20 instead of $150,242.48, as returned by the executors.

The evidence establishes that, at the time of his death, decedent owned certain securities which were deposited in banks in France and England. After decedent’s death one of the executors personally went to those countries to obtain possession of said securities, but the French banks refused to deliver the securities there to the executor until death taxes claimed by the French Government in the amount of $10,986.56 had first been paid. Likewise the English banks refused to turn over to the executor the securities in their possession until inland revenue dues claimed by the British Government in the amount of $18,789.72 had first been paid. The executors paid, out of moneys forming part of the estate in the United States, the taxes claimed by the two foreign governments, respectively, and the securities were thereby brought into the administration of the decedent’s estate in the United States.

The securities were returned by the executors as a part of the gross estate at their value less the amount of taxes so paid to the French and British Governments. In determining the deficiency the respondent included the securities without deducting said taxes. The petitioners contend, first, that the securities should be included at their value less the taxes paid in order to obtain possession and bring them into the administration of the estate in the United States, and, secondly, in the alternative, that deduction of the taxes should be allowed as administration expenses if the securities are included in the gross estate at their full value.

We think these issues are controlled by the principles applied by the Supreme Court to strikingly similar facts in the case of Frick v. Pennsylvania, 268 U. S. 473. We quote from the court’s opinion as follows:

The decedent owned many stocks in corporations of states, other than Pennsylvania, which subjected their transfer on death to a tax and prescribed means of enforcement which practically gave these states the status of lienors in possession. As those states had created the corporations issuing the stocks, they had power to impose the tax and to enforce it by such means, irrespective of the decedent’s domicile, and the actual situs of the stock certificates. Pennsylvania’s jurisdiction over the stocks necessarily was subordinate to that power. Therefore to bring them into the administration in that state it was essential that the tax be paid. The executors paid it out of moneys forming part of the estate in Pennsylvania and the stocks were thereby brought into the administration there. We think it plain that such value as the stocks had in excess of the tax is all that could be regarded as within the range of Pennsylvania’s taxing' power. * * * So much of the value as was required to release the superior claim of the other states was quite beyond Pennsylvania’s control. Thus the inclusion of the full value in the computation on which that state based its tax, without any deduction for the tax paid to the other states, was nothing short of applying that state’s taxing power to what was not within its range. That the stocks, with their full value, were ultimately brought into the administration in that state, does not help. They were brought in through the payment of the tax in the other states out of moneys of the estate in Pennsylvania. The moneys paid out just balance the excess in stock value brought in. Vet in computing the tax in that state both were included.
We are of opinion that in so far as the statute requires that stocks of other states be included at their full value, without deducting the tax paid to those states, it exceeds the power of the state and thereby infringes the constitutional guaranty of due process of law.

In the same opinion from which the foregoing extract is quoted, the court calls attention to the fact that the Federal estate tax is imposed as an excise on the transfer of property from a decedent and takes effect at the instant of transfer.

The statute applicable here is the Revenue Act of 1926, which provides:

Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—
(a) To the extent of the interest therein of the decedent at the time of his death.

Assuming, without here deciding, that the British inland revenue dues and the French death taxes took effect at the instant of decedent’s death, and bearing in mind that the Federal estate tax here involved is an excise imposed upon the transfer of decedent’s property by death, we think it is clear that the “ interest of decedent at the time of his death ” in the British and French securities, which was transferred as a result of his death, was the value thereof less the British and French taxes. In any event, certainly such diminished value is all' that was transferred and brought into the administration of his estate, and such interest is all that is subjected by the statute to tax. The respondent’s action is, therefore, reversed.

Having reached the conclusion indicated, it is unnecesary to consider the petitioner’s alternative plea that the amounts of the British and French taxes should be deducted as administration expenses.

4 and 5. These issues involve gifts of money made by the decedent to his brother, William Littauer, and to his niece, Catherine Louise Doeller, within two years of the date of his death. The gifts made by the decedent to his brother within such period aggregated $109,550, of which the respondent included'in the gross estate $104,550, or the excess over $5,000. The gifts made by the decedent to his niece within said two-year period amounted to $9,544.15, of which the respondent included in the gross estate the excess over $5,000, or the net amount of $4,544.15.

At the hearing the petitioners offered evidence, without objection from the respondent, to establish that these gifts were in fact not made in contemplation of death, and admittedly being completed gifts at the time made, they could not have been intended by the decedent to take effect in possession or enjoyment at or after his death. Obviously, then, the respondent included said gifts in the gross estate in excess of $5,000, pursuant to section 802 (c) of the Bevenue Act of 1926, which provides that:

Where within two years prior to his death but after the enactment of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or intended to take effect in possession or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of $5,000, then to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title.

Upon completion of the testimony offered by the petitioners at the hearing, the respondent conceded that said gifts were in fact not made in contemplation of death, and that the amounts thereof included in the gross estate should be excluded in the redetermination of the deficiency. This constituted in effect a confession of error on the part of the respondent, and also an agreement or stipulation of the parties that the gifts should not be included in the gross estate. The statute, however, provides that gifts of the kind here involved “ shall be deemed and held to have been made in contemplation of death,” and so subject to tax. A conclusive presumption is raised by the statute which does not admit of rebuttal. The action of the respondent in confessing error, or if viewed as a stipulation of the parties, amounts substantially to a conclusion of law in direct contravention of the statute. In these circumstances, we can not give effect tó such a confession or stipulation.

On the other hand, the same net result must be reached, but for an entirely different reason. The validity of the statute above quoted was considered by us in Estate of Robert Todd Lincoln, 24 B. T. A. 334, and we there held that the conclusive presumption provision of section 302 (c) of the Revenue Act of 1920 is unconstitutional. On authority of that decision, we hold here that, since the respondent included the gifts in question in decedent’s gross estate because of such invalid statutory presumption, and it having been shown that the gifts in fact were not made in contemplation of death, the amounts included by the respondent will be excluded in redetermining the deficiency..

6. This assignment of error relátes to the action of' the respondent in disallowing a claim of Dr. Berg against the estate in the amount of $15,000 for surgical services rendered to the decedent. No evidence was offered thereon at the hearing, and for the purposes of this proceeding the issue ma.y be considered as abandoned in view of the following statement of counsel for the petitioners:

Now, your Honor, I think I made a misstatement when you asked me whether any of the items in the petition would not be pressed; the item of the hill of Dr. Berg will not be pressed at this time, that being in dispute, pending in the Surrogate’s court, as to the amount.

7. This item relates to the claim of Dr. Elias Berg in the amount of $500, which, the evidence shows, was compromised and settled by the executors on October 23, 1930, for $250. The latter amount constitutes an allowable deduction from the value of the gross estate.

8 and 9. These issues involve additional income taxes of the decedent for the years 1927 and 1928,. the amounts of which were originally in controversy. The matter was adjusted and on February 4, 1931, the executors paid the amounts set out in our findings of fact, which amounts will be allowed as .deductions in redetermining the deficiency.

Judgment will be entered under Rule 50.


author: Van Fossan :

text:
    Ward Brothers Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 30992.
    Promulgated November 30, 1931.

      Leon F. Cooper, Esq., and Raymond F. Qarrity, Esq., for the petitioner.

      E. A. Tonjes, Esq., for the respondent.
   OPINION.

Van Fossan :

The fundamental question for determination in this proceeding is whether or not, under the provisions of - section 280 of the Revenue Act of 1926, the petitioner is liable as a transferee for the additional income taxes for the jmar 1918 which were assessed against the Krug Baking Company of Ohio.

Under its contract of July 1, 1918, with William B. Ward the Krug Baking Company of Ohio made a bona fide sale of all its property of every kind to the Krug Baking Company .of Delaware, which was Ward’s assignee. There was no identity of stockholders of the two companies nor was Ward a stockholder of the Krug Baking Company of Ohio. At the date o.f the contract no income taxes for the year 1918 had accrued or were due from the Ohio -company. The consideration for the sale was the payment to the Ohio company of $325,000 and an agreement on the part of the Krug Baking Company of Delaware, through Ward, its assignor, that it would 'pay the

Ohio company’s debts in an amount not in excess of $10,000 more than the Ohio company’s bills and accounts receivable, together with the further agreement that the Delaware company would pay the Ohio company’s “ United States income taxes since January 1, 1918.” It was stipulated by the parties to this proceeding that “ the terms and conditions of'the said contract were carried out as therein provided.” The cash price, namely, $325,000, was paid to" the Ohio company in the manner provided in the contract and, upon the dissolution of that company, that sum, which appears to have been the Ohio company’s only asset after the sale, was distributed to its chief stockholder, one George F. Krug. Krug is not a party to this proceeding and therefore we may not determine whether or not he is a transferee of the Krug Baking Company of Ohio who is liable under the provisions of section 280 of the Revenue Act of 1926 for the payment of the deficiency involved herein.

It is manifest from the facts that the sale of the property of the Krug Baking Company of Ohio to the Krug Baking Company of Delaware, under the terms of the Ohio company’s contract with William B. Ward, was not made in fraud of creditors and that the Ohio company was not insolvent at the date of the contract or immediately thereafter. If, therefore, the Delaware company was liable at any time as a transferee to pay the income taxes of the Ohio company for the year 1918, the liability was predicated on the Delaware . company’s purchase of the Ohio company’s property under a contract providing that the purchaser would pay the seller’s “ United States "income taxes since January 1, 1918.” If the petitioner, which four years after the date of "the sale referred to succeeded to the assets of the Delaware company, is liable for payment of the deficiency involved herein its liability must be predicated on proof that it received from the Delaware company assets which had been the property of the Krug Baking Company of Ohio and also on proof that it assumed a liability to pay the Ohio company’s income taxes for the year 1918 as provided in the contract of July 1, 1918. If it is not proved that the petitioner received from the Delaware company assets of the Ohio company purchased under the contract of July 1,1918, then the petitioner can not be held liable as a transferee of the Ohio company for the deficiency involved, for the reason that the liability assessable under section 280 of the Revenue Act of 1926 is that imposed upon transferees by reason of their receipt of property of the taxpayer. See Deport of the Senate Committee on Finance, January 22, 1926, pp. 28, 29, 30; A. H. Graves et al., 12 B. T. A. 124. On December 31, 1922, the petitioner succeeded to the Delaware company’s assets in liquidation of that company’s stock which the petitioner owned. The petitioner at that time assumed all of the Delaware company’s liabilities and the value of the assets of the Delaware company received by it was in excess of the amount of the deficiency here involved. These facts are stipulated. But there is no proof in the record that among the assets received by the petitioner from the Delaware company there was included any of the property received by the Krug Baking Company of Delaware from the Krug Baking Company of Ohio. More than four years had elapsed since the date of the contract of sale of the Ohio company’s property and the performance of that contract and much may have occurred during that interval with reference to such property received by the Delaware company. It may have been destroyed; it may have been burned; some of it may have been sold, but if sold there is no evidence that the cash received therefor by the Delaware company had not been dissipated or otherwise disposed of. In other words, there is no evidence whatever of the identity of the property received by the petitioner from the Krug Baking Company of Delaware with the property sold to that company by the Krug Baking Company of Ohio. Hence, there is a complete failure of proof as to an essential fact and with respect to that essential fact we are left to sheer conjecture. Moreover, we are of the opinion that the evidence fails to establish that included in the liabilities of the Delaware company assumed by the petitioner was the liability under the contract of sale of July 1, 1918, to pay the Ohio company’s “ United States income taxes since January 1, 1918.” In 1919 there had been filed in behalf of the Krug Baking Company of Ohio an unsworn corporation income and profits-tax return for the year 1918, and the amount of the taxes as therein computed, namely, the sum of $12,174.88, was paid. Whether such payment satisfied all that was understood between the parties to the contract of July 1, 1918, as to the meaning and intent of the agreement to pay United States income taxes since January 1, 1918,” does not appear as a fact in this proceeding. Be that as it may, however, it was stipulated by the petitioner and the respondent that “ the terms and conditions ” of the contract of July 1, 1918, between the Krug Baking Company of Ohio and Ward, the Delaware company’s assignor, “ were carried out as therein provided.” If that stipulation means anything it means that all the agreements and covenants to be performed by the Delaware company under the contract of 1918 were performed by it. It follows that so far as the record in this case is concerned it is not shown that the petitioner assumed any liability to pay the Krug Baking Company of Ohio’s 1918. income and profits taxes. The respondent contends that under the provisions of the contract of July 1, 1918, the United States could successfully maintain a suit at law or in equity against the petitioner to enforce the collection of the deficiency herein involved and in support of this contention the respondent cites Austin v. Seligman, 18 Fed. 519; Philadelphia Rubber Works Co. v. United States Rubber Reclaiming Works, 277 Fed. 171, and other cases holding in effect that under the conditions therein set forth a stranger to a private contract may maintain an action in court to recover under its terms. But even if the respondent’s contention in this respect were true, the evidence in this proceeding is not such that we can hold that petitioner’s liability as a transferee has been established.

Under section 280 of the Revenue Act of 1926 the burden of proof of liability is on the respondent. Section 602 of the Revenue Act of 1928. For the reasons already stated, it is our opinion that the respondent has failed to sustain that burden.

In view of our conclusion, no discussion of any other question raised by the pleadings and the briefs in this proceeding is necessary.

Judgment of no transferee liability will be entered.


author: TRAmmiell:

text:
    The Borg and Beck Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 24223, 34964.
    Promulgated November 30, 1931.

      Irvin H. Fathehild, Esq., for the petitioner.

      Arthur Garnduff, Esq., for the respondent.
   OPINION.

TRAmmiell:

The petitioner contends that the actual cash value of the four applications for patents acquired by it from the partnership at the time of organization in May, 1913, was at least $1,000,000. Considering all of the evidence submitted on this point we are of the opinion that the actual cash value of the applications was $700,000 and have so found as a fact. In arriving at this valuation we have given consideration to the testimony of witnesses, the facts known or reasonably anticipated at the basic date, and the close approximation of actual earnings to those anticipated. We have not considered actual earnings further than as to test the reliability of the testimony as to known factors and those previously anticipated. The witnesses however apparently overlooked the fact that anticipated earnings should be reduced to present worth at the basic date.

The petitioner contends that it is entitled to include in its invested capital for 1920 the actual cash value of the applications for patents at the time of acquisition in May, 1913. The respondent contends that the total allowance for intangibles in determining invested capital for 1920 is limited to $20,000, in accordance with the provisions of section 326 (a) (4) of the Revenue Act of 1918.

Section 326 of the Revenue Act of 1918 provides in part as follows:

(a) That as used in this title the term “ invested capital ” for any year means (except as provided in subdivision (b) and (c) of this section) :
(3) Paid-in or earned surplus and undivided profits; not including surplus and undivided profits earned during the year;
(4) Intangible property bona fide paid in for stock or shares prior to March 3, 1917, in an amount not exceeding (a) the actual cash value of such property at the time paid in (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding on March 3, 1917, whichever is lowest.

At the time of organization in May, 1913, the petitioner issued its entire authorized capital stock of $80,000 par value for the assets of the partnership, of which $45,197.92 par value was for tangible assets, and the remainder, $34,802.08, was for the intangible assets, consisting of good will, patents, and the four applications for patents here involved. No attempt has been made by either of the parties to show what part of the stock issued for intangibles is applicable to good will, or to patents, or to the applications for patents, nor was any attempt made to establish the value of any of the intangibles except the applications for patents. The evidence indicates that the good will acquired from the partnership was valuable to the. petitioner. It also indicates that the patents acquired were on woodworking machinery, probably of some value, but no value is shown. The evidence also shows that the applications for patents were of a substantial value, which we have found to be $700,000.

Paragraph (4) of subdivision (a) of section 326 of the Revenue Act of 1918 is a limitation on the amount at which intangible property paid in for stock may be included in invested capital. The provisions of the paragraph limit the inclusion of such property to the smallest of three amounts, namely, the actual cash value of the property at the time paid in for stock, the par value of the stock issued for the property and 25 per cent of the par value of the total stock outstanding on March 3, 1917. In the instant case we have found the four applications for patents had an actual cash value of $700,000, no attempt having been made, to show the value of the other intangibles. Stock of the par value of $34,802.08 was issued for intangibles, including the four applications. Since the petitioner’s original outstanding capital stock of $80,000 par value remained at that amount until March 30, 1918, 25 per cent of the par value of its outstanding capital stock on March 3, 1917, was $20,000. Since $20,000 is the smallest of the three amounts, it is the largest amount at which the intangibles acquired by the petitioner at the time of organization may be included in invested capital. Even if the entire capital stock of a par value of $80,000 had been issued specifically for the patent application, the 25 per cent limitation would limit invested capital to $20,000 with respect thereto. Neither can any excess value of the applications for patents be included as paid-in surplus, since intangible property may not be included in invested capital as paid-in surplus. See St. Louis Screw co., 2 B. T. A. 649; Herald-Despatch Co., 4 B. T. A. 1096; D. N.& E. Walter & Co. et al., 10 B. T. A. 620; E. T. Wright & Co., 23 B. T. A. 351.

In recomputing the deficiency for 1920 the intangibles acquired by the petitioner at the time of organization should be included in the petitioner’s invested capital at the amount of $20,000.

The petitioner did not submit any evidence with respect to its allegation that the respondent erred in reducing invested capital for 1920 by the amount of $61,973.37 representing additional taxes for prior years. Nor was any reference made thereto in its brief. As the allegation was denied by the respondent, his action is accordingly sustained as to this issue.

The petitioner contends that the respondent erred in failing to allow a deduction against gross income for 1920, 1923 and 1924 on account of the exhaustion of the patents issued to it on the applications for patents acquired from the partnership. While the applications for patents were pending they were not the proper subject of exhaustion, since they had no definite period of useful life. The dates upon which the patents were issued on the applications marked the transformation of what were theretofore nonexhaustible assets into assets subject to exhaustion extending over the 17-year period covered by such patents. Hershey Manufacturing Co., 14 B. T. A. 867. The petitioner having issued its capital stock for the applications for patents and the patents thereafter having been issued on such applications, the cost of the patents to the petitioner was the value of the stock issued therefor. The record does not indicate that any sales of the petitioner’s stock were made on or about the time the stock was issued for the applications for patent. The applications for patents having had a value of $700,000 at the time they were paid in for stock, we are of the opinion that under the circumstances the stock issued therefor had a value of the same amount. Consequently the cost of the patents to the petitioner was $700,000. For each of the years 1920, 1923 and 1924 the petitioner is entitled to a deduction against gross income of an aliquot portion of $700,000 based on the life of the patents.

In the petition in Docket No. 34964 the petitioner alleges that the respondent erred in determining that for 1924 the depreciation taken by it was excessive in the amount of $3,201.57. The record is silent as to the nature of the property on which this deduction for depreciation was taken. However, the deficiency notice indicates that it was probably tangible property. The respondent, however, denied that he erred as the petitioner alleged, and, no evidence having been submitted on this issue, the action of the respondent is sustained.

The petitioner contends that the amount of $14,978.30 expended in 1923 in connection with the change of its capital stock from that having a par value to that having no par value and the amount of $12,193 expended in 1924 in connection with the increase of its capital stock from 100,000 shares of no par value to 125,000 shares of no par value constituted operating expenses properly deductible in the respective years. The respondent contends that the amounts constituted capital expenditures and .therefore are not deductible as expenses. Since expenditures incurred in acquiring additional permanent capital and in connection with the change of its capital structure are capital expenditures, we think the contention of the petitioner as to the above amounts constituting deductible expenses must be denied. See Emerson Electric Manufacturing Co., 3 B. T. A. 932; Peaslee-Gaulbert Co., 14 B. T. A. 769.

The petitioner contends that if the total amounts of $14,978.30 expended in 1923 and $2,193 expended in 1924 are' not, as a class, allowable deductions, certain of the items composing these amounts otherwise should be allowed. It contends that the amount of $4,250 paid in 1923 to the Secretary of State of the State of Illinois on the change in capital stock and the amount of $1,250 paid to the same official in 1924 on the increase in capital-stock, while being termed fees, were in .fact taxes, and as such constitute allowable deductions for the respective years. The respondent urges that such amounts were not taxes, but fees charged for -services rendered by the State.

Article Y, section 23, of the Illinois constitution provides that the officers composing the executive department of the government of that State and including the secretary of state, shall receive for their services a salary to be established by law, which shall not be increased or diminished during their official terms; that :they shall not receive to their own use any fees, cost, perquisites of office, or other compensation. This section further provides that all fees payable by law for any services performed by any officer provided for in this article of the constitution shall be paid in advance into the State treasury.

Chapter 53, paragraph 1, Callaghan’s Illinois Statutes Annotated, fixes the annual salaries of certain State, officials, including the secretary of state. Paragraph 2 of the same chapter provides in part as follows:

That all fees that now are, or that may be hereafter provided by law to be paid to either of said officers above named,, shall be paid in advance into the State treasury, as revenue. The treasurer shall keep a separate account of the amount received from each office, and his receipt shall be retained by the officer rendering the services. In all cases where such officers shall be entitled to fees, they shall render, under oath, to the Governor, a semi-annual report of the amount, and from what sources received:

■ Chapter 32, paragraph 96, provides in part as follows:

The Secretary of State shall charge and collect ah initial fee of one-twentieth of one per centum upon the amount of the capital stock which the corporation is authorized to have, but in no case shall such fee be less than twenty dollars, and a like fee upon any subsequent increase and in addition thereto the same fee as that required for filing other certificates of amendment. In the event that the corporation has capital stock of no par value, its shares, for the purpose of fixing the fee, shall be considered to be o'f the par value of one hundred dollars per share.

The Supreme Court of Illinois has recognized that what the statutes of the state designate a fee may in fact be a tax. In Cook County v. Fairbank et al., 222 Ill. 578; 78 N. E. 895, the court had before it the question as to whether a certain graduated amount designated by the statute as a “ docket foe ” payable to the clerk of a probate court was in fact a fee. In holding that the amount was not a fee, but a tax, the court said: , .

Section 12 of article 10 of the Constitution of 1870 provides: “ The General Assembly shall, by general law, uniform in its operation, provide for and regii-láte the feos of said officers (state, county, and township] and their successors, so as to reduce the same to a reasonable compensation for services actually rendered.” While (he amount demanded of the appellees by said clerk as a condition precedent to the delivery to them of their lettefs testamentary is designated in the statute “ a docket fee,” it is apparent that the amount exacted by the clerk was in no way measured by the amount or value of the services performed by him, but the charge against the estate .depended entirely upon the size or amount of the estate. If an estate does not exceed in value $2,000, no docket fee is to be taxed. If it is more than that amount, and does not exceed in value $5,000, a docket fee of $5 is to be taxed, or, if the estate is of the size of the Fairbank estate, a fee of $1,250 is to be taxed, although the docketing of the estate, in each case, in the office of the clerk of the probate court would require the same amount of labor by the clerk, and no more. The provision of the Constitution above referred to, required the General Assembly, by general law, uniform in its operation, to regulate the fees of county officers in such manner that the fees charged and collected by them shall be “ a reasonable compensation for services actually rendered.” Clearly, the framers of that provision of the Constitution intended that the fees of probate courts in counties of the third class should be based upon the amount, quality, and character of the services performed by the clerks of said courts, and not arbitrarily fixed on the basis of the value or amount of the estates which might pass through those courts, and we think it evident the amount designated in said statute as a docket fee was not intended by the framers of said statute to represent the value of services actually rendered by the probate clerk in each estate in docketing the estate, but that said statute was intended by its framers to furnish a means whereby the public revenues of counties of the third class in the state would be increased, by collecting through the probate court a charge upon the designated estates. The amount sought to be retained by the probate clerk, was, therefore, properly speaking, not a fee, but was a burden or charge imposed upon said estate to raise money for public purposes, regardless of the value of the services actually rendered the estate, which is in conflict with the constitutional provision hereinbefore set forth, and which would bring said burden or charge within the well-recognized definition of a tax, which may, in a general sense, be defined to be a burden or charge imposed by the legislative power of the state upon persons or property for public uses. Dalrymple v. City of Milwaukee, 53 Wis. 178, 10 N. W. 141.
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It is urged by appellant that this court, in the case of People v. Hinrichsen, 161 Ill. 223, 43 N. E. 973, is committed to the view that the statute fixing the fees of the Secretary of State for incorporating corporations, which are graduated according to the ^mount of the capital stock of the corporation, is a valid exercise of legislative power. "We are of the opinion there is a well-marked line of distinction between the Hinrichsen Case and the case at bar. It is the same line of demarcation pointed out in the inheritance tax cases heretofore referred to. An inheritance tax was sustained on the ground that it was not a tax upon property, but upon the right of succession, and that the state had the right to prescribe rules of descent and conditions upon which the property should be inherited. So with the right of the state to establish fees in cases of persons desiring to organize corporations. A corporation is a creation of the Legislature. Persons are not obliged to incorporate against their will. If, however, they do incorporate, they must accept the burdens imposed upon them by general law. Such, however, is not the case with the statute authorizing the collection of the docket fee mentioned in the statute now under consideration. That, as was said by Judge Cassoday in State v. Mann, supra, “ is nothing less than a charge imposed by the Legislature as a condition precedent to allowing the county court to proceed with the administration of this estate.”

The question presented to the court in the Hinrichsen case referred to in the preceding quotation was whether a corporation was required to pay certain amounts designated by the statute as “ fees ” in order to increase its capital stock. In holding that the corporation was subject to the payment of the amounts involved, the court held that the purpose of the act imposing the amounts was to derive revenue.

In Holeproof Hosiery Co., 11 B. T. A. 547, a case relied upon by the petitioner, we considered the question of whether‘an amount paid by a Wisconsin corporation under the laws of that state in connection with an increase of its capital stock was a fee or a tax. With respect to the distinction between a fee and a tax we said:

Tims strictly speaking, tlie word “ fees ” signifies compensation for particular acts or services rendered by proper officers in tbe line of tbeir duties to be. paid by tbe persons obtaining tbe benefit of tbe services or at whose instance-tbey were performed. See State ex rel. Board of Commissioners v. Carey) (Ind.) 84 N. E. 761, 762.
Various circumstances may lead to tbe conclusion that a certain charge made-by a State is a tax. Eor example, tbe purpose for which tbe charge was mad may be determinative. Ward v. Maryland, 12 Wall. 418; Glasgow v. Rowse, 43 Mo. 479; and Airway Electric Appliance Corporation v. Archer, supra. See: also Harvey v. Commonwealth of Virgnia, 20 Fed. 411. Tbe weight of authority-holds that where the charge is made primarily for the purpose of revenue, it; is a tax. A license is issued under the police power, but the exaction of a license fee with a view to revenue would be the exercise of the power of taxation. See State v. Bengsch, 170 Mo. 81; 70 S. W. 710.

In concluding that the payment there involved constituted a tax and as such an allowable deduction, although designated a fee by the statutes of the State of Wisconsin, we said:

We have already said in interpreting section 234 (a) (3) of the Revenue Act of 1918, which is similar to the same section of the Revenue Act of 1921, here involved, that we think Congress used the word “ taxes ” in this subdivision in a broad sense. Caldwell Milling Co., 3 B. T. A. 1232. Taxes are deductible without regard to their relation to capital or income transactions. United States v. Woodward, 256 U. S. 632. In the case just cited, the court in holding that a Federal estate tax might be deducted under section 214 (a) (3) of the Revenue Act of 1918, said that if the correct construction should be a matter of doubt, it would follow the rule laid down in Gould v. Gould, 245 U. S. 151, and construe the Act most strongly against the Government and in favor of the citizen.
Each party might have presented additional evidence which would have given a better picture of the case than we now have. The respondent offered no evidence but relied upon the wording of the Wisconsin statute. However, the evidence which is before us indicates that the exaction from the petitioner was in substantial excess of any special benefits accruing to it; that it bore little, if any relation to the cost of any service rendered by the State, or to reasonable compensation for any trouble or expense on the part of the State on account of the increase in the petitioner’s authorized capital stock; that the receipts of the office of the secretary of state from this and similar charges greatly exceeded the portion of the expenses of administration attributable to the performance of any service by the State in connection with the charges; that the receipts were used for general State purposes and considerable revenue was derived in this way; and, in short, that there was a taking under the guise of taxation. See Norwood v. Baker, 172 U. S. 269. Under such circumstances we hold that the amount paid was a tax within the meaning of section 234 (a) (3) of the Revenue Act of 1921, and deductible thereunder.

In our opinion the amounts paid to the Secretary of State of Illinois as fees were in fact taxes, and, being such, are deductible as taxes paid.

The petitioner contends that it should be allowed as deductions for 1923 the amounts of $1,000 and $12 expended in that year for United States revenue stamps on the issue of 100,000 shares of no par value stock to replace its par value stock outstanding and to cover miscellaneous stock transfers, respectively.

The Revenue Act of 1921 provides in part as follows:

Title XI. — Stamp Taxes.
Sec. 1100. That on and after January 1, 1922, there shall be levied, collected, and paid, for and in respect of the several bonds, debentures, or certificates of stock and of indebtedness, and oilier documents, instruments, matters, and things mentioned and described in Schedule A of this title, or for or in respect of the vellum, parchment, or paper upon which such instruments, matters, or thing's, or any of them, are written or printed, by any person who makes, signs, issues, sells, removes, consigns, or ships the same, or for whose use or benefit the same are made, signed, issued, sold, removed, consigned, or shipped, the several taxes specified in such schedule. The taxes imposed by this section shall, in the case of any article upon which a corresponding stamp tax is now imposed by law, be in lieu of such tax.
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Schedule A. — Si-amp Taxes.
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2. Capital stock, issued: On each original issue, whether on organization or reorganization, of certificates of stock, or of profits, or of interest in property or accumulations, by any corporation, on each $100 of fact/ value or fraction thereof, 5 cents: Provided, That where a certificate is issued without face value, the tax shall be 5 cents per share, unless the actual value is in excess of $100 per share, in which case the tax shall be 5 cents on each $100 of actual value or fraction thereof, or unless the actual value is less than $100 per share, in which ease the tax shall be 1 cent on each $20 of actual value or fraction thereof.
The stamps representing the tax imposed by this subdivision shall be attached to the stock books and not to the certificates issued.
3. Capital stock, sales or transfers: On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to shares or certificates of stock or of profits or of interest in property or accumulations in any corporation, or to rights to subscribe for or to receive such shares or certificates, whether made upon or shown by the books of the corporation, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or oilier evidence of transfer or sale, whether entitling the holder in any manner to the benefit of such stock, interest, or rights, or not, on each $100 of face value or fraction thereof, 2 cents, and where such shares are without par or face value, the tax shall be 2 cents on the transfer or sale or agreement to sell on each share * * *.

There is no controversy between parties as to the amount of $1,000 having been paid by ihe petitioner for revenue stamps which it used in connection with the issue of the 100,000 shares of no par value stock, nor does the respondent advance any argument as to why the amount should not be allowed as a deduction. In view of the decision in Cuba Railroad Co. v. United States, 60 Ct. Cls. 272, and the cases there cited, it may well be that the petitioner’s exchange of no liar value stock for its outstanding par value stock was not subject to the tax imposed by the above quoted provisions of the Revenue Act of 1921. Inasmuch as the petitioner paid the amount in controversy apparently in good faith and in the belief that the amount was due and payable under the Act, and as no contention is advanced that it was ever refunded to the petitioner or ever will be refunded, we do not deem it necessary to decide whether the petitioner was in fact liable for the tax. Since the four-year period within which a refund of the amount could be claimed has expired, we are of the opinion that the x>otitioner is entitled to a deduction of the amount as taxes paid.

The amount of $12 expended by the petitioner for revenue stamps for miscellaneous stock transfers apparently was expended in connection with the sale or transfer of stock by petitioner’s stockholders. At any rate the record does not show that the'stamps were used in connection with sales or transfers by the petitioner. Under the above quoted provisions of the 1921 Act, such stockholders were liable for the payment of the tax and not the petitioner. Since the liability for the payment of the tax was that of the stockholders, the -tax is not deductible by the |)etitioncr. A. Eisenberg, 11 B. T. A. 574.

The petitioner contends that the amount of $1,625 expended in 1923 for the x>rinting of stock certificates should be allowed as a deduction for that year. We think that this expenditure was in the nature of “ organization expenses ” and should not be deducted as ordinary and necessary expenses.

The proceeding in Docket No. 21223 will be restored to the calendar for hearing u/nder Rule 62 (b). In Docket No. 3If961 judgment will be entered under Rule 50.