Coast Carton Co. v. Commissioner of Internal Revenue

Decision Date12 July 1945
Docket NumberNo. 10859.,10859.
Citation149 F.2d 739
PartiesCOAST CARTON CO. v. COMMISSIONER OF INTERNAL REVENUE.
CourtU.S. Court of Appeals — Ninth Circuit

Meredith M. Daubin, of Washington, D. C., for petitioner.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Robert N. Anderson, Louise Foster, and Helen Goodner, Sp. Assts. to the Atty. Gen., for respondent.

Before GARRECHT, MATHEWS, and STEPHENS, Circuit Judges.

STEPHENS, Circuit Judge.

Petitioner asks us to review and reverse a decision of the United States Tax Court, which approved a deficiency found against it by the Collector of Internal Revenue for payment of income tax, excess profits tax and penalty for the tax year 1939.

Petitioner was incorporated under the laws of the State of Washington in 1904 for a period of twenty-five years, which time expired, and no extension of the charter has ever been granted. The business of the enterprise has, without exception, been conducted under the original corporate name, and the Tax Court agreed with the Collector of Internal Revenue that after expiration of the charter, the entity carrying the corporate name was in fact an association taxable as a corporation. The Coast Carton Company's tax return for the year in question was on corporate form, and deductions were taken for compensation paid J. L. Norie, Jr., Mrs. J. L. Norie, Jr., and Mary E. Banks, as officers of the company. Such compensation was found to have been fraudulently claimed, and penalty was assessed.

J. L. Norie claims that he is the sole owner of Coast Carton Company and that it is neither a corporation nor an association. J. L. Norie has owned stock in the corporation since 1916, becoming sole owner of all outstanding stock in 1924. This stock consisted of common par value equaling $29,300 and preferred par value $25,000. He transferred stock as follows: to his wife, Martha K. Norie, ten shares; to his son, J. L. Norie, Jr., eleven shares; and to his daughter, Mary E. Banks, ten shares. Although stock certificates were issued accordingly, they have remained in possession of J. L. Norie. No corporate or stockholders meetings have been held since 1926. In the summer of 1940 J. L. Norie was informed that the corporate charter had expired in 1929. Thereafter, J. L. Norie filed individual tax returns as to the company business. However, the business was continued under the corporate name; business was conducted and property was owned under the forms and practices of a corporation.

Martha K. Norie died in 1937. Her husband, J. L. Norie, acted as administrator, and the company stock which was issued in her name was inventoried. In 1928, J. L. Norie, Jr., an employee of the company, went east on company business. However, he abandoned such business and went to Spain, where he was killed in 1938, dying testate. The eleven shares of company stock were decreed to the widow, Esther Norie. The matter of payments to members of the Norie family is succinctly stated in the respondent's brief as follows:

"During 1938 Esther Norie received checks from the Coast Carton Company payable to her husband and used the proceeds thereof to support herself and two minor daughters. Her understanding was that the checks represented salary of her husband. The joint income tax return filed by Esther Norie for herself and husband for 1938 reported salary of $2,934 received from the Coast Carton Company.

"Each week in 1939 through October 27, the taxpayer issued a check for maintenance and support of Esther Norie and her two minor children, but only the first five checks, totaling $294, were cashed by Esther Norie. Her policy was not to cash the checks unless the proceeds were needed for maintenance of herself and her family. Five other checks were in her possession uncashed on December 31, 1941. The remaining checks, aggregating $1,986, were not delivered to Esther Norie and are still in the possession of the taxpayer.

"The return filed by Esther Norie for 1939 reported the receipt of $540 from the Coast Carton Company as compensation for services rendered. Esther Norie did not at any time render services to the Coast Carton Company.

"For many years prior to the death of Martha K. Norie, $47 of her husband's salary was deposited to her credit each week for operating the family home. Upon her death in 1937, J. L. Norie made arrangements with his daughter to keep house for him. Each week thereafter, through October, 1939, J. L. Norie caused the Coast Carton Company to issue a check for $47 to his daughter for household expenses. Of the 43 checks, totaling $2,021 issued in 1939, the first one, issued January 6, was cashed in July, 1939, and the remaining checks were not cashed and were canceled prior to the close of 1939. Mary E. Banks performed no service for the Coast Carton Company.

"All of the checks issued in 1939 in favor of James L. Norie, Jr., and his wife, and the check for $47 issued to and cashed by Mary E. Banks, were charged on the books of the Coast Carton Company to an account entitled `Salaries G. & A.' and at the close of 1939 transferred as a charge to profit and loss.

"In the income tax return filed by the Coast Carton Company on a corporate form for 1938, a deduction of $12,829 was claimed for compensation of J. L. Norie, as president, J. L. Norie, Jr., as secretary, and Mary E. Banks, as vice-president. A statement was made in the return that the officers devoted all of their time to the business.

"In the income tax return filed by the Coast Carton Company on a corporate form for 1939, deductions, totaling $8,887, were claimed as compensation of officers including J. L. Norie, J. L. Norie, Jr., Mrs. J. L. Norie, Jr., and Mary E. Banks. The...

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13 cases
  • Herbert v. Riddell
    • United States
    • U.S. District Court — Southern District of California
    • 28 de fevereiro de 1952
    ...1949 ed., p. 175. 37 Regulation 111, Subpart (F), Sec. 29.3797-2, 26 Code of Federal Regulations, p. 696. 38 Coast Carton Co. v. Commissioner, 9 Cir., 1945, 149 F.2d 739; Kaufmann v. Commissioner, 3 Cir., 1949, 175 F.2d 28; Jones v. Grinnell, 10 Cir., 1950, 179 F.2d 873; Commissioner of Int......
  • Roberts v. Commissioner of Internal Revenue
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • 27 de junho de 1949
    ...reenacted after their promulgation. Morrissey v. Commissioner, 1935, 296 U.S. 344, 56 S.Ct. 289, 80 L.Ed. 263; Coast Carton Co. v. Commissioner, 9 Cir., 1945, 149 F.2d 739. Of course, regulations "can add nothing to income as defined by Congress." M. E. Blatt Co. v. United States, 1938, 305......
  • Patton v. Commissioner
    • United States
    • U.S. Tax Court
    • 27 de março de 1985
    ...v. Commissioner Dec. 13,885, 3 T. C. 676, 683-685 (1944), affd. sub nom. Coast Carton Co. v. Commissioner 45-2 USTC ¶ 9325, 149 F. 2d 739, 742 (9th Cir. 1945).10 Finally, petitioner's unsuccessful attempt to induce Ware to adhere to his perjured testimony before the grand jury evidences pet......
  • Messer v. CIR
    • United States
    • U.S. Court of Appeals — Third Circuit
    • 10 de fevereiro de 1971
    ...Ochs v. United States, 305 F.2d 844, 158 Ct.Cl. 115 (1962), cert. denied, 372 U.S. 968, 83 S.Ct. 1093 (1963); Coast Carton Co. v. Commissioner, 149 F.2d 739 (9 Cir. 1945); Poplar Bluff Printing Co. v. Commissioner, 149 F.2d 1016 (8 Cir. 1945). A liquidating corporation continues its federal......
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