Albert Lea Packing Co. v. Commissioner

24 B.T.A. 376, 1931 BTA LEXIS 1649

• Court: United States Board of Tax Appeals
• Decided: October 21, 1931
• Docket: Docket Nos. 20765-20776.
• Status: Published

Opinions

OPINION.

ARUNdell :

Petitioners contend that the assessments made in January, 1922 and 1923, are now uncollectible by reason of the statute of limitations. We agree with that contention. The assessments were timely made, but at the time the deficiency notices were mailed, August 27, 1926, collection was barred under the decision in Russell v. United States, 278 U. S. 181.

In the case of only one of these petitioners, namely Wilson & Company, Inc., of California, has collection been enforced since the statute against collection became operative. It is claimed that the amount collected from that petitioner on January 3, 1927, constitutes an overpayment under section 607 of the Revenue Act of 1928 and should be refunded. That section, however, is limited by section 611 of the same act, which provides that where a tax was timely assessed, abatement claim filed and collection stayed, then the tax paid before or within one year after the enactment of the 1928 Act shall not be considered an overpayment. The facts in this case bring it within section 611. The application of that section is not affected by the fact that collection was enforced by dis-traint warrant as it has been specifically held that that section “ embraces involuntary payments.” Graham v. Goodcell, 282 U. S. 409. That case and the group of related cases decided the same day hold section 611 to be a valid enactment of Congress and overrule various objections that had been advanced as to the validity of the section. The application of section 611 in our opinion is not affected by the fact that payment was made after a petition for redetermination was filed with the Board. We had similar facts in F. A. Gillespie, 20 B. T. A. 1068, and we held that section 611 applied, although not making specific mention of that phase of the case. While section 284(e) of the Revenue Act of 1926 and the amendment thereof by section 507 of the Revenue Act of 1928 give us jurisdiction to determine overpayments and provide that over-payments so found shall be credited or refunded, it is our opinion that section 611 must be considered a limitation on those provisions, and where the circumstances detailed in section 611 are present we are prohibited from finding that the payments made are over-payments. To hold otherwise would be to say that section 611 places a limitation on the finding of overpayments by the Commissioner and by any court in which suit may be brought for refund but not on the Board. In Graham v. Goodcell, it was argued that the section applied to the Commissioner, but not to judicial proceedings. This the Supreme Court rejected, saying:

It would be anamolous that the right of the taxpayer to obtain a refund from the Department, to which he was under obligation to resort (K. S. 3226, U. S. C., Title 26, section 156), should be denied, while the right to recover by suit the same amount under exactly the same circumstances should remain unaffected. * * * tVe think it was intended to prevent refunds in the circumstances stated and not merely a particular way of getting the money from the Treasury: that the effect of the provision was to deny a right to recover the amount paid and that the provision governs equally wherever the right is asserted. [Italics supplied.]

The reasoning of the court is applicable here and we accordingly hold that the amount collected from Wilson & Company, Inc., of California, on January 3, 1927, is not an overpayment.

Petitioners argue that the assessments made in 1922 are invalid because of lack of notice and opportunity for hearing as prescribed by section 250 (d) of the Kevenue Act of 1921. We think there is no merit in this contention. The deficiencies had been determined and the petitioners notified thereof prior to the enactment of the Kevenue Act of 1921.

It is also claimed that the jeopardy assessments made in 1923 are void because the provision of the statute authorizing such assessments fails to provide for notice or opportunity for hearing and hence violates the due process clause of the Fifth Amendment to the Constitution. We considered the same objections to the jeopardy assessment provision of the Kevenue Act of 1924 in Continental National Bank & Trust Co., 20 B. T. A. 829, and held adversely to the claims made here. We hold the same in these cases.

It is stipulated that on September 27, 1927, the respondent determined that the parent company, Wilson & Company, Inc., of New York, had overpaid its taxes for 1918, and before refunding the overpayment he credited certain amounts on the assessments against the several petitioners. At the time the credit was so made collection of the assessment was barred.

No issue is raised in the pleadings with respect to the credits made by respondent and the petitions contain no prayer for relief in respect of them. In petitioners’ brief it is argued that the attempt of the respondent so to credit the taxes refundable to the parent company “ is of no effect.” To dispel any confusion that may arise through the similarity of names, we point out here that the parent company is Wilson & Company, Inc., of New York and the subsidiary that is a party to these proceedings is Wilson & Company, Inc., of California. The parent company is not before us asking for a refund and so we have some difficulty in determining what point the petitioners are trying to make with regard to the credit.

It may be, as held in Hart Glass Manufacturing Corporation v. United States, 48 Fed. (2d) 434, that, in the absence of an agreement, the Commissioner may not credit an overpayment by one member of an affiliated group against the deficiency of another member. But even if the pleadings clearly raised this issue, it would avail the parent company nothing for us to so hold, because that company is not before us as a party to the proceedings. We do not understand that petitioners are seeking a refund of the amounts credited to the assessments against them. The determination of refunds is beyond our jurisdiction, but we may in proper cases determine overpayments, which the statute directs shall be credited or refunded. If this — the determination of overpayments- — -is the issue, we hold that the crediting of the parent company’s overpayment to the assessments against petitioners does not constitute any overpayment on the part of petitioners. The petitioners have paid nothing. It is conceivable that the parent company might in a proper proceeding secure a refund of its overpayment which was credited against the barred assessments, and if we were to hold that the credit constituted over-payments of petitioners, the result would be a double refund.

As the result of the stipulations filed there remain only two questions for decision on the merits. Both arise under the invested capital issue and are (1) whether or not the earned surplus of four of the subsidiaries at the time their stock was acquired by the parent company should be included as a part of consolidated invested capital, and (2) whether or not the stock of Schwarzschild & Sulzberger Company, received by the parent company in exchange for its capital stock, had a value in excess of the amount allowed by the respondent in his determination of the consolidated invested capital.

In relation to the first question, the parties have stipulated and we have found that, at the time the parent company acquired the stock of the said four subsidiaries, they had earned surpluses in the total amount of $118,590.74, which amount respondent disallowed in its entirety in computing consolidated invested capital for the taxable year 1917. These are the only relevant facts disclosed by the record. We do not know when the parent company acquired the stock of the subsidiaries, except that obviously it was prior to 1917; nor do we know whether the said amount of earned surplus was in the possession of the subsidiaries at the beginning and end of the taxable year. Unless the subsidiaries had the earned surplus at the beginning of the taxable year, it may not be included in consolidated invested capital.

The facts are not sufficient to bring this case within our decisions to the effect that earned surplus of subsidiaries should be included in determining consolidated invested capital. See Farmers Deposit National Bank et al., 5 B. T. A. 520; Grand Rapids Dry Goods Co., 12 B. T. A. 696; American Bond & Mortgage Co., 15 B. T. A. 264.

On this question we think what we said in Middlesex Ice Co. et al., 9 B. T. A. 156, is applicable:

In the instant case, it appears that on May 1, 1919, the Cambridge Ice Company’s surplus (whose stock was acquired by the Middlesex Ice Co. for its own stock) was in excess of the amount existing at the date when the holding company acquired the Cambridge Ice Company’s stock. That surplus, not having been distributed to the stockholders or dissipated in operations, may not be eliminated from the consolidated invested capital * * ⅜.

In this case, however, we do not know whether or not at the beginning of the taxable year 1917 the subsidiaries had any earned surplus. It may have been distributed or dissipated in operations long-prior to the taxable year. We therefore approve the Commissioner’s determination in eliminating these surpluses from consolidated invested capital.

The second question under the invested capital issue arises from the petitioner’s claim that the stock of Schwarzschild & Sulzberger Company, all of which, except 40 shares, was acquired by the parent company in exchange for shares of its capital stock, had a value in excess of the amount allowed by the respondent in computing consolidated invested capital.

The respondent determined the value of said stock to be $15,130,-319.96, which he included in the consolidated invested capital. This determination is presumed to be correct.

The petitioners contend that the value of said stock, for invested capital purposes, is the par value of the shares issued therefor, plus the amount of cash paid for a portion thereof for which stock was not issued.

In April, 1910, the parent corporation acquired 43,581 shares of stock in the Schwarzschild & Sulzberger Company in exchange for 52,278 shares of its preferred stock, of the par value of $5,227,800, and 200,000 shares of its common stock, of the par value of $20,000,-000, or stock of the total par value of $25,227,800. Thereafter, on September 5, 1910, the parent corporation purchased an additional 40 shares of Schwarzschild & Sulzberger stock for $24,000 cash. The aggregate of the par value of the parent company stock, plus the cash, or the amount of $25,251,800, is the value of the Schwarzschild & Sulzberger stock which the petitioners contend should be included in computing their consolidated invested capital.

This question is governed by the Revenue Act of 1917, which provides in material part as follows:

Sec. 207. That as used in this title, the term “ invested capital ” * * * means * ⅜ *:

(a) In the case of a corporation * * * (1) Actual cash paid in, (2) the actual cash value of tangible property paid in other than cash, for stock or shares in such corporation * * * at the time of such payment (but in case such tangible property was paid in prior to January first, nineteen hundred and fourteen, the actual cash value of such property as of January first, nineteen hundred and fourteen, but in no case to exceed the par value of the original stock or shares specifically issued therefor), and (3) paid in or earned surplus and undivided profits used or employed in the business, exclusive of undivided profits earned during the taxable year: * * *

The petitioners argue that the minute book of the parent corporation shows that its directors were personally familiar with the property, business and prospects of Schwarzschild & Sulzberger Company, and that they valued the business at $28,000,000, which valuation should be accepted by us, but because of the limitation contained in the above quoted statute, the value of the stock can' be included in invested capital only at the par value of the shares of stock issued therefor, plus the $24,000 cash paid for the additional 40 shares. Thus, they seek to fix the value of said stock, for invested capital purposes, at $25,251,800 at the time when acquired by the parent corporation in 1910.

We have repeatedly held that the par value of stock issued for assets is not the measure of their actual cash value. Richmond Dairy Lunch, 1 B. T. A. 876; Barnes Coal & Mining Co., 3 B. T. A. 891; Wallis Tractor Co. et al., 3 B. T. A. 981, nor is the value determined by directors, as evidenced solely by a corporate resolution, sufficient to overcome the presumption of correctness of the Commissioner’s determination.

It does not appear that the Schwarzschild & Sulzberger Company was included in a consolidated return with the petitioners during the taxable year. It is clear that the transaction occurred prior to the taxable year, and both parties hereto have acted upon the theory that this is not a question of consolidated invested capital as between Wilson & Company and Schwarzschild & Sulzberger Company. The latter corporation is not included in the list of affiliated corporations set out in the stipulation. We think, therefore, that the invested capital of Wilson & Company with respect to the stock of Schwarz-schild & Sulzberger is governed by our decision in Regal Shoe Co., 1 B. T. A. 896.

Capital stock of a corporation is regarded as tangible property for invested capital purposes, Regal Shoe Co., supra; United Cigar Stores of America v. United States, 62 Ct. Cls. 134, and where paid in for stock prior to January 1,1914, invested capital under the 1917 Act must be computed on the basis of the actual cash value of the stock paid in, as of that date. West End Consolidated Miming Co., 3 B. T. A. 128; Duguesne Steel Foundry Co., 15 B. T. A. 467; Arizona Commercial Mining Co. v. Casey, 32 Fed. (2d) 288.

It is deemed unnecessary to discuss in detail objections to the petitioner’s argument or the insufficiency of the proof, other than to point out that value is a question of fact which must be determined from the evidence before us in each case, and that in the present record there is no evidence respecting the value of the Schwarzschild & Sulzberger stock as of January 1, 1914. The petitioners contented themselves with attempting to fix the value of said stock as of 1910. If we should accept the argument of the petitioners as sound, we could not assume, in the absence of proof, that the value in 1910 remained the same on January 1, 1914. On the latter date, the value might have been more or it might have been less. The petitioners offered no evidence, nor does the record otherwise disclose any fact, respecting the value of the stock as of the basic date fixed by the statute. For lack of evidence to show error, respondent’s determination on this point is approved.

As indicated above, the parties have disposed of some of the issues by stipulation. The matters so agreed upon are stipulated in paragraphs numbered 2, 8, and 4 of the agreed statement of facts filed at the hearing and will be settled under Rule 50.

Reviewed by the Board.

Decision will be entered under Rule 50.