White v. Commissioner

1976 T.C. Memo. 382, 35 T.C.M. 1726, 1976 Tax Ct. Memo LEXIS 23

• Court: United States Tax Court
• Decided: December 13, 1976
• Docket: Docket No. 2991-74.
• Status: Unpublished

Opinion

TOM C. and TOMMIE O. WHITE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

White v. Commissioner

Docket No. 2991-74.

United States Tax Court

T.C. Memo 1976-382; 1976 Tax Ct. Memo LEXIS 23; 35 T.C.M. (CCH) 1726; T.C.M. (RIA) 760382;

December 13, 1976, Filed

---

Harold D. Rogers, for the petitioners.

Suzanne B. O'Neill and Kenneth A. Little, for the respondent.

---

SCOTT

MEMORANDUM FINDINGS OF FACT AND OPINION

SCOTT, Judge: Respondent determined a deficiency in petitioners' income tax for the calendar year 1970 in the amount of $6,598.93.

The only issue for decision is the amount petitioners are entitled to deduct as a charitable contribution to the First Baptist Church of Wichita Falls, Texas because of a gift to that church on December 18, 1970, of 4,000 shares of stock of Mercantile Credit Corporation. The amount of the deduction to which petitioners are entitled is dependent upon the fair market value of the stock given by petitioners to the church on December 18, 1970.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly.

Petitioners, husband and wife, who resided in Wichita Falls, Texas at the time of the filing of their petition in this case, filed a joint Federal income tax return for the calendar year 1970.

Mercantile Credit Corporation (hereinafter referred to as Mercantile) was formed in 1938. At the time of its formation the primary function intended to be performed by Mercantile was providing financing for White Auto Stores.The stock of Mercantile from the time of its formation was held primarily by members of a family by the name of Adams and members of a family by the name of White of which Tom C. White (hereinafter petitioner) was a member. However, from at least prior to 1966 there were shareholders who were neither members of the White nor the Adams family. Mercantile kept its books and reported its income and prepared its annual report on the basis of a fiscal year ending March 31.

From 1962 until the end of its fiscal year 1966 the owners of the shares of Mercantile stock were primarily identified in some way with White Auto Stores. White Auto Stores were primarily dealer-operated stores, each dealer operating under franchise. On November 15, 1966, control of White Auto Stores was acquired by a subsidiary of Household Finance Corporation (hereinafter Household Finance).

From 1962 throughout the fiscal year 1966 Mercantile's board of directors and officers had remained unchanged. W. Erle White, a brother of petitioner, was chairman of the board; B. J. Hale, president; Tom C. White, vice president; George G. Adams, vice president; R. B. Francis, vice president; Gary White, treasurer; and George J. Adams, secretary.

On November 1, 1966, the Adams family, consisting of George G. Adams, George R. Adams, and Richard A. Adams, owned 52,773, 44,526, and 44,526, respectively, of the outstanding shares of stock of Mercantile.At all times here relevant there was a total of 500,000 shares of Mercantile stock outstanding. In November 1966, W. Erle White and his family transferred 115,492.5 shares of Mercantile common stock to various members of the Adams family. The sales price of this stock was $3.83 per share. This price represented book value of the stock as of March 31, 1966, less 10 percent. After this sale by W. Erle White and his family of Mercantile stock to the Adams family, 51.7 percent of the outstanding stock of Mercantile was owned by the Adams family.

At the time W. Erle White and his family sold their shares of Mercantile stock to the Adams family, W. Erle White and his family acquired a controlling interest in Beacon National Insurance Co. and Equitable Life Insurance Co. by acquisition of stock of these corporations owned by the Adams family.

After the purchase by the Adams family of a controlling interest in Mercantile, George G. Adams became chairman of the board; George R. Adams, president; George J. Adams, secretary; Leonard Chittum, Jr., assistant secretary and treasurer; and John H. Foster, assistant treasurer. At the time of the acquisition by the Adams family of the Mercantile stock of W. Erle White and his family, George G. Adams offered to purchase the 58,501 shares of stock of Mercantile which petitioner then owned for a price computed at book value less 10 percent. However, petitioner did not accept the offer.

By November 1966 when Household Finance acquired control of White Auto Stores, the business of Mercantile had expanded to include financing for businesses other than White Auto Stores, and in addition Mercantile had acquired as subsidiaries two small loan companies located inTexas. Also, at that time Mercantile owned a retail White Auto Store in Delhi, Louisiana and one in Quitman, Georgia. In the annual report of Mercantile for its fiscal year ending March 31, 1966, the statement was made that the company would continue in its efforts to diversify.

Although the dealer of each of the dealeroperated White Auto Stores was entitled to choose the finance company with which his business was placed, when the subsidiary of Household Finance acquired control of White Auto Stores a number of the dealers chose to have their financing handled by Household Finance rather than Mercantile. Some of the dealers did stay with Mercantile, but the loss of many of the White Auto Stores dealerships as customers resulted in a substantial loss of business for Mercantile.

The following schedule shows the paper purchased, net income, net income per share of common stock, cash dividend per share of common stock, net worth, and book value per share of Mercantile common stock for its fiscal years ending March 31, 1962 through 1971: