Seaboard Loan & Sav. Asso. v. Commissioner
This text of 45 B.T.A. 510 (Seaboard Loan & Sav. Asso. v. Commissioner) is published on Counsel Stack Legal Research, covering United States Board of Tax Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
[514]*514OPINION.
The issues presented for decision are whether the respondent erred in determining that the petitioner was a personal holding company in the taxable year and in assessing a penalty of 25 percent for failure to file a personal holding company return on Form 1120H.
Although the taxable year of petitioner which is before us ended March 31, 1938, the Revenue Act of 1936 is the applicable ■act. This is so because section 1 of the Revenue Act of 1938 provides that “The provisions of this title shall apply only to taxable years beginning after December 31, 1937.” The taxable year before us began April 1,1937.
The applicable provisions of the 1936 Act and regulations thereunder are printed in the margin.1
The petitioner concedes that more than 50 percent of the value of its outstanding stock is owned by not more than five of its stockholders, but denies that 80 percent of its gross income for the taxable year was personal holding company income within the meaning of the statute. Counsel for the petitioner argues that the collection from “fees” and “fines” are not interest; that Congress did not intend to include operating small loan companies within the scope and operation of the act; [515]*515and that petitioner should not be subject to a penalty for failure to file a return. The respondent contends that “fees” and “fines” received by petitioner from its debtors were amounts received for the use of money loaned and, therefore, come within the term “interest” as defined in the statute and applicable regulations.
Petitioner’s gross income for the taxable year was $79,640.86. Of this amount $49,171.55 was admittedly interest from notes; $20,519.71 was from “fees” charged (2 percent of the face value of the loan for investigation); and $8,940.18 was from fines. It is, therefore, obvious that unless the amounts collected as “fees” are considered as interest, 80 percent of petitioner’s gross income for the taxable year was not personal holding company income within the statutory definition. The case, therefore, turns on whether amounts collected by petitioner from its debtors of 2 percent on each loan made for “investigation” are in fact “interest” within the meaning of the statute and regulations. ■ The question of whether fines are interest becomes immaterial to the decision of the case if we hold that the 2 percent collected on each loan for “investigation” is interest, because in that event con-cededly more than 80 percent of petitioner’s gross income in the taxable year would be from interest.
The questions raised here have heretofore been before the Board and the courts and have been decided adversely to the petitioner’s contentions. Seaboard Small Loan Corporation, 42 B. T. A. 715; Girard Investment Co. v. Commissioner, 122 Fed. (2d) 843, affirming memorandum opinion of the Board. Both Seaboard Small Loan Corporation and Girard Investment Co., supra, were decided on authority of Noteman v. Welch, 108 Fed. (2d) 206.
[516]*516All of the questions raised here were raised in Noteman v. Welch, supra, and were decided adversely to the petitioner’s contentions.
The petitioner’s argument that the segregation on its books of amounts received for “fees”, “fines”, and “interest” differentiates this case from the Noteman case, supra, and the Girard case, supra, is not persuasive. In both those cases amounts collected from the borrower for services were treated as interest, i. e., amounts paid by the borrower for the use of money loaned. In those cases, as in the instant case, substantially all the services charged for were for the benefit of the lender and not for the benefit of the borrower, and the only consideration received for the amounts paid by the borrower was the money loaned. As to the fines paid, the court in Noteman v. Welch, supra, indicates there might be a difference, but, as we have already stated, it is unnecessary to decide that question in this proceeding.
Petitioner urges that Congress never intended to include small loan corporations such as petitioner within the provisions of the personal holding company provisions of the applicable' revenue act. This question was thoroughly considered by the courts of appeal in both the Noteman v. Welch and Girard Investment Co. v. Commissioner cases, and was decided adversely to petitioner’s contentions. In both cases the legislative history of section 351 was reviewed by the court. On the authority of these cases we decide this issue in favor of the Commissioner.
The second issue is whether petitioner is liable for the 25 percent penalty which the Commissioner has added to the tax in accordance with the provisions of section 291 of the Revenue Act of 1936.
The evidence shows that petitioner did not file a personal holding company return on Form 1120H for the taxable year ended March 31, 1938. Petitioner’s accountant, who prepared petitioner’s return on Form 1120, testified at the hearing and gave as his reason for not preparing a return for petitioner as a personal holding company on Form 1120H: “Simply that in my opinion the amount of the interest did not reach the necessary 80 percent.”
This being the state of the evidence, we think petitioner has failed to show that its failure to file a personal holding company return on Form 1120H was due to reasonable cause. Lone Pine Lawn Corporation, 41 B. T. A. 638; affd., Lone Pine Lawn Corporation v. Helverirng, 121 Fed. (2d) 935. On this issue we sustain respondent.
Decision will be entered for respondent.
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45 B.T.A. 510, 1941 BTA LEXIS 1114, Counsel Stack Legal Research, https://law.counselstack.com/opinion/seaboard-loan-sav-asso-v-commissioner-bta-1941.