[647] OPINION.
Opper :
This proceeding presents two questions. The first is a somewhat complicated variation of the problem dealt with in Zaida Clay, 40 B. T. A. 562. Here the decedent, controlling stockholder of an “investment” corporation, included in his return an item reporting a dividend of that corporation. Upon examination of the corporation’s return, respondent concluded that this item was not actually received by decedent; that it represented an attempt under the Revenue Act of 1932, section 104 (d),1 to report a “distributive share” of the corporation’s income, even though not distributed, thus exonerating the corporation under that section; and that decedent was accordingly chargeable, regardless of receipt, with his entire distributive share. This was considerably in excess of what he had reported and the proposed deficiency resulted.
A preliminary issue is whether the corporation was formed or availed of for the purpose described’ in that section. Jennie King Mellon et al., Executors, 38 B. T. A. 1259. We have found that it was. [648] The circumstances of its formation the year before and its use in the present year are insufficient to overcome the presumptive existence of that purpose resulting from its admitted character as a mere investment company. Only decedent’s general statement that he did not intend to escape Federal taxes tends in the opposite direction.2 And the absence of supporting evidence and of other convincing motives which exclude such an intent, as well as the unspecific nature of that testimony, deprive it of sufficient weight to overcome the presumption. See R. L. Blaffer & Co., 37 B. T. A. 851; affd., 103 Fed. (2d) 487 (C. C. A., 5th Cir.) ; certiorari denied, 308 U. S. 576. Similarly, the conduct of the corporation in the present year is not so unequivocal as to disturb the presumption.3 True, it claims to have distributed all of its dividend income, and to that extent the individual surtax was not avoided. But the corporate return discloses that an item of tax-exempt interest was not distributed. If that was exempt only from normal tax, and the record does not indicate otherwise, then the corporation was also availed of in the present year, at least in that respect, to relieve its stockholders of surtax.
That being so, respondent’s conclusion is warranted if there was an election of the alternative proffered by section 104 (d). Zaida Clay, supra. The difficulty is that petitioners deny that decedent intended to elect, and contend that 'the distributions in question were actually made by the corporation and received by decedent in cash as dividends. In this aspect the situation is not so clear as it was in the Clay proceeding, where the original intention to elect was uncontested. On this controversial question of fact, however, we have made no determination since, in our view, no finding as to decedent’s undisclosed intent [649] could alter tlie effect of Ms explicit statement, which was of such a nature as by itself to demonstrate an exercise of the election.
The corporation return referred to a “distribution” in the proper amount but carried it not on the line marked “dividends”, but as “other debits to surplus.” Nevertheless, it appeared that it was not debited to surplus. The return expressly referred to section 104 (d).4 It called attention, presumably as confirmation, to decedent’s individual return, where the item is included in his gross income as a dividend without any explanatory matter. Thus, the necessary inference from a specific reference to that portion of the act granting the right of election was nowhere contradicted or in fact seriously questioned.
These circumstances seem to us to supply the requirements of an “election.” There was “a manifestation of choice”; exercise of the option was “shown by an overt act.” See Bierce, Ltd. v. Hutchins, 205 U. S. 340, 346; Schenck v. State Line Telephone Co., 238 N. Y. 308, 144 N. E. 592, 593; Snow v. Alley, 156 Mass. 193; 30 N. E. 691, 692. The decision to elect was communicated to respondent, as it must have been intended that it should be, as a part of the respective income tax returns.5 And the fact that the assertion upon which respondent’s position is founded appeared originally in the corporation’s return rather than in decedent’s need not be significant in the view that decedent dominated the corporation, and in fact executed its return as its president. See Higgins v. Smith, 308 U. S. 473. The advantage which the corporation derived from the statements in its return in avoiding the possibility of application of the penalty tax makes it all the more necessary that there should be no double benefit where these statements can be attributed, as they can here, to the alternative taxpayer. Stone v. White, 301 U. S. 532.
While this Board may be without power to treat the equities as decisive, it need not refrain from noting that petitioners have not been harmed by respondent’s action. On the contrary, if respondent had declined to treat the two returns as an election, which petitioners now contend he should have done, and had assessed the section 104 tax against the corporation, the combined taxes of de[650] cedent and the corporation would have been greater than they will be, even including the entire amount of the present deficiency.6 And it was decedent who would have borne the' economic burden of the, corporation’s tax since he was to all intents and purposes its sole stockholder. This corporation being subject to section 104, the tax was clearly payable by corporation or stockholder. Certainly the latter is not the victim of inequity if his total burden is less than if his action had been construed as petitioners now contend it should have been.
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[647] OPINION.
Opper :
This proceeding presents two questions. The first is a somewhat complicated variation of the problem dealt with in Zaida Clay, 40 B. T. A. 562. Here the decedent, controlling stockholder of an “investment” corporation, included in his return an item reporting a dividend of that corporation. Upon examination of the corporation’s return, respondent concluded that this item was not actually received by decedent; that it represented an attempt under the Revenue Act of 1932, section 104 (d),1 to report a “distributive share” of the corporation’s income, even though not distributed, thus exonerating the corporation under that section; and that decedent was accordingly chargeable, regardless of receipt, with his entire distributive share. This was considerably in excess of what he had reported and the proposed deficiency resulted.
A preliminary issue is whether the corporation was formed or availed of for the purpose described’ in that section. Jennie King Mellon et al., Executors, 38 B. T. A. 1259. We have found that it was. [648] The circumstances of its formation the year before and its use in the present year are insufficient to overcome the presumptive existence of that purpose resulting from its admitted character as a mere investment company. Only decedent’s general statement that he did not intend to escape Federal taxes tends in the opposite direction.2 And the absence of supporting evidence and of other convincing motives which exclude such an intent, as well as the unspecific nature of that testimony, deprive it of sufficient weight to overcome the presumption. See R. L. Blaffer & Co., 37 B. T. A. 851; affd., 103 Fed. (2d) 487 (C. C. A., 5th Cir.) ; certiorari denied, 308 U. S. 576. Similarly, the conduct of the corporation in the present year is not so unequivocal as to disturb the presumption.3 True, it claims to have distributed all of its dividend income, and to that extent the individual surtax was not avoided. But the corporate return discloses that an item of tax-exempt interest was not distributed. If that was exempt only from normal tax, and the record does not indicate otherwise, then the corporation was also availed of in the present year, at least in that respect, to relieve its stockholders of surtax.
That being so, respondent’s conclusion is warranted if there was an election of the alternative proffered by section 104 (d). Zaida Clay, supra. The difficulty is that petitioners deny that decedent intended to elect, and contend that 'the distributions in question were actually made by the corporation and received by decedent in cash as dividends. In this aspect the situation is not so clear as it was in the Clay proceeding, where the original intention to elect was uncontested. On this controversial question of fact, however, we have made no determination since, in our view, no finding as to decedent’s undisclosed intent [649] could alter tlie effect of Ms explicit statement, which was of such a nature as by itself to demonstrate an exercise of the election.
The corporation return referred to a “distribution” in the proper amount but carried it not on the line marked “dividends”, but as “other debits to surplus.” Nevertheless, it appeared that it was not debited to surplus. The return expressly referred to section 104 (d).4 It called attention, presumably as confirmation, to decedent’s individual return, where the item is included in his gross income as a dividend without any explanatory matter. Thus, the necessary inference from a specific reference to that portion of the act granting the right of election was nowhere contradicted or in fact seriously questioned.
These circumstances seem to us to supply the requirements of an “election.” There was “a manifestation of choice”; exercise of the option was “shown by an overt act.” See Bierce, Ltd. v. Hutchins, 205 U. S. 340, 346; Schenck v. State Line Telephone Co., 238 N. Y. 308, 144 N. E. 592, 593; Snow v. Alley, 156 Mass. 193; 30 N. E. 691, 692. The decision to elect was communicated to respondent, as it must have been intended that it should be, as a part of the respective income tax returns.5 And the fact that the assertion upon which respondent’s position is founded appeared originally in the corporation’s return rather than in decedent’s need not be significant in the view that decedent dominated the corporation, and in fact executed its return as its president. See Higgins v. Smith, 308 U. S. 473. The advantage which the corporation derived from the statements in its return in avoiding the possibility of application of the penalty tax makes it all the more necessary that there should be no double benefit where these statements can be attributed, as they can here, to the alternative taxpayer. Stone v. White, 301 U. S. 532.
While this Board may be without power to treat the equities as decisive, it need not refrain from noting that petitioners have not been harmed by respondent’s action. On the contrary, if respondent had declined to treat the two returns as an election, which petitioners now contend he should have done, and had assessed the section 104 tax against the corporation, the combined taxes of de[650] cedent and the corporation would have been greater than they will be, even including the entire amount of the present deficiency.6 And it was decedent who would have borne the' economic burden of the, corporation’s tax since he was to all intents and purposes its sole stockholder. This corporation being subject to section 104, the tax was clearly payable by corporation or stockholder. Certainly the latter is not the victim of inequity if his total burden is less than if his action had been construed as petitioners now contend it should have been.
It is, of course, inescapable, that if we sustain petitioners’ contention here they will be materially benefited. But that is only because the statute has since run against resort to the corporation. That should be an added reason, if one were needed, for holding petitioners to the position decedent originally' assumed. No attempt has ever been made to correct the asserted error by way of amended returns, and it is clearly too late now for such action to be considered timely. See Wm. B. Scaife & Sons Co., 41 B. T. A. 278. To place upon respondent in such circumstances the responsibility of discovering at the peril of the revenue whether a return means what it fairly appears to say seems to us to create an unbearable administrative burden. See Rose v. Grant, 39 Fed. (2d) 340 (C. C. A., 5th Cir.) ; Moran v. Commissioner, 67 Fed. (2d) 601 (C. C. A., 1st Cir.); Wm. B. Scaife & Sons Co., supra. We are accordingly of the opinion that decedent must be held to have exercised an election the consequences of which his personal representatives can not now be permitted to avoid.
The second issue relates to a claimed loss by reason of the worthlessness of certain bank stock. Clark, one of petitioners’ witnesses, who fortuitously is also a member of the law firm representing petitioners, testified in effect that it was apparent in 1933 that an assessment upon stockholders would have to be levied. He went further and explained his statement by pointing out that the superficial solvency of the bank indicated on its books was overcome by a report made by the Federal Deposit Insurance Corporation showing that book values were excessive. No other contrary evidence is to be. found. Petitioners contend that the failure of the bank to reopen on January 2, 1934, is the identifiable event demonstrating worthlessness,- and that 1934 is therefore the proper year. But if a single identifiable event is necessary it seems evident that it is furnished, [651] not by tbe failure to reopen, but by the closing of the bank’s doors on the last day of 1933, which, by prearrangement, was to be the end of the bank’s operation. If the stock was worthless on that day, as it clearly was, this termination of the bank’s business life put an end to all possibility of improvement in the future. The evidence is susceptible of only one interpretation, and that is that the stock became worthless in the year 1933 and not in 1934.
Reviewed by the Board.
Decision will he entered for the respondent.