Maytag v. Commissioner
This text of 9 T.C.M. 240 (Maytag v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
Memorandum Findings of Fact and Opinion
The Commissioner determined a deficiency in the gift tax of the petitioner for 1944 in the amount of $185,492.96.
The values of gifts of no-par common stock on March 8, 1944 and of $3 cumulative preference stock on March 16, 1944 of The Maytag Company are the only matters in dispute.
Findings of Fact
The petitioner filed his gift tax return for 1944 with the collector of internal revenue for the district of Colorado.
The petitioner created four trusts, one for the benefit of each of his four children, on March 8, 1944. He transferred to each trust on the same day 25,000 shares of the no-par common stock of the company. He transferred to each trust 10,000 shares of the $3 cumulative preference stock of the company on March 16, 1944. All of those transfers were made as gifts.
The Maytag Company (herein called the company) and its predcessor have been in business since 1893. The outstanding capital stock of the company in late May 1928 consisted*240 of (1) 100,000 shares of $6 first preferred stock, (2) 320,000 shares of $3 preference stock and (3) 1,600,000 shares of no-par common stock.
The $6 first preferred dividend was cumulative and was payable before any dividends could be paid on the cumulative preference stock. The first preferred stock carried liquidation rights of $100 per share plus accrued dividends in an involuntary liquidation and of $110 per share plus accrued dividends in a voluntary liquidation. It was callable on 30 to 60 days notice at $110 per share plus accrued dividends. A sinking fund was established to redeem 2 per cent of the first preferred stock annually, provided the dividends on both classes of preferred stock were paid to date. The sinking fund requirements were cumulative and had to be met to date before dividends could be paid on the common stock.
The $3 cumulative preference dividend was payable before any dividends could be paid on the common stock. The preference stock carried liquidation rights of 90 per cent of the distributable assets after redemption of the first preferred stock, but not to exceed $50 per share plus accrued dividends in an involuntary liquidation or $55 per share plus*241 accrued dividends in a voluntary liquidation. It was callable on 30 to 60 days notice at $55 per share plus accrued dividends, provided the dividends on the first preferred stock were not in arrears. Each share of the preference stock carried an attached Common Stock Purchase Warrant entitling the holder to purchase 1 1/2 shares of common stock on or before May 1, 1938. One-half of the monies received by the company upon the exercise of those warrants was payable into a sinking fund for the redemption of the preference stock. Neither the first preferred nor the cumulative preference stock carried voting rights except (a) on certain matters relating to capitalization, creation of funded debt, etc., and (b) in the event of default of four quarterly dividends on either class of preferred stock, in which event the first preferred and cumulative preference stockholders, voting together as a class, would be entitled to elect a majority of the Board of Directors.
The company had only one class of common stock outstanding. The common stock was of no par value, it had exclusive voting rights except as noted above, and it was entitled to all dividends after the payment of first preferred and*242 preference dividends and to all assets upon dissolution after the satisfaction of the liquidation rights of the preferred and preference stockholders. There were no bonds outstanding.
The company originally manufactured band cutters, self feeders and corn huskers. It began manufacturing electric washing machines in 1911 and was one of the pioneers in the manufacture of that type of machine. It was the first to market gasoline-driven washing machines, cast aluminum tubs and one of the first to market washing machines with swinging wringers. Its sales of washing machines exceeded those of all other products by 1919. The company and its subsidiaries were engaged primarily in the manufacture and sale of washing machines and ironing machines and repair parts therefor from 1922 through 1941.
The company developed a new type of washing machine in 1922 which consisted of a circular tub in the bottom of which a cone-shaped impeller with blades oscillated in such a manner that the soapy water was given a circulatory motion in the tub. The company concentrated its activities on the manufacture and sale of that type of washing machine after 1922.
It was the largest exclusive manufacturer*243 of washing machines in the world by 1928 and continued to be a leader in the field until the war terminated the manufacture of all washing machines. Its products were sold in 1928 through approximately 2,000 exclusive dealers and by about 1,600 other dealers. Its daily productive capacity was 400 machines in 1924, 800 in 1928 and 2,000 in 1929. The company sold about one-third of all washing machines sold in 1929 and about one-sixth of those sold in 1933 and 1934.
A competitor of the company developed and produced a fully automatic washing machine after 1938. The company considered developing such a machine prior to the war, but it did not develop one until after the war.
The company was engaged primarily in manufacturing airplane parts and other war material under war sub-contracts from April 1942 until August 1945, although it continued to make washing machine replacement parts which accounted for 10 to 12 per cent of its billing during that period. Its competitors were also engaged in war work during those years.
The net profits of the company, the amounts required to pay the current dividends on the two classes of its preferred stock, the earnings per share of common stock, *244 and the dividends paid per share of each class of stock were as follows from 1925 through 1944: