Pittsburgh Milk Co. v. Comm'r of Internal Revenue, Docket Nos. 40271-40275

Decision Date27 June 1956
Docket Number48223-48228.,Docket Nos. 40271-40275
Citation26 T.C. 707
PartiesTHE PITTSBURGH MILK COMPANY, DISSOLVED, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtU.S. Tax Court

26 T.C. 707

THE PITTSBURGH MILK COMPANY, DISSOLVED, ET AL.,1 PETITIONERS,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 40271-40275

48223-48228.

Tax Court of the United States.

Filed June 27, 1956.


[26 T.C. 708]

Robert G. MacAlister, Esq., and Joseph B. Cohen, C.P.A., for the petitioners.

George J. Rabil, Esq., for the respondent.

A corporation sold milk for net prices, fixed pursuant to agreement with certain of its customers, which were less than the minimum prices prescribed by the Milk Control Commission of Pennsylvania; and, in order to conceal the true nature of the transactions from the local authorities, it entered the sales on its books at the authorized list prices, and charged the reductions from such list prices to advertising. Held, that notwithstanding the illegal nature of the sales, the gains or profits which the corporation realized therefrom must be computed, for income tax purposes, with respect to the agreed net prices for which the milk actually was sold, and not with respect to the fictitious prices entered in the accounts; and that the amounts of the agreed allowances should be applied to reduce the corporation's gross sales.

The respondent determined deficiencies, an addition to the tax and transferee liabilities, in respect of income taxes of the Pittsburgh Milk Company, a dissolved corporation, as follows:

+-----------------------------------------------------------------------------+
                ¦ ¦ ¦Taxable ¦ ¦Addition to ¦
                +----------+--------------------------+---------------+----------+------------¦
                ¦Docket No.¦Petitioner ¦period ¦Deficiency¦tax under ¦
                +----------+--------------------------+---------------+----------+------------¦
                ¦ ¦ ¦ended ¦ ¦sec. 291 (a)¦
                +----------+--------------------------+---------------+----------+------------¦
                ¦ ¦ ¦{Mar. 31, 1947 ¦$9,773.54 ¦ ¦
                +----------+--------------------------+---------------+----------+------------¦
                ¦ ¦ ¦{Mar. 31, 1948 ¦24,720.30 ¦ ¦
                +----------+--------------------------+---------------+----------+------------¦
                ¦40271 ¦The Pittsburgh Milk ¦{Mar. 31, 1949 ¦ ¦ ¦
                ¦ ¦Company ¦ ¦ ¦ ¦
                +----------+--------------------------+---------------+----------+------------¦
                ¦ ¦ ¦{Apr. 1 to Oct.¦1,930.49 ¦ ¦
                +----------+--------------------------+---------------+----------+------------¦
                ¦ ¦ ¦{ 31, 1949. ¦ ¦ ¦
                +-----------------------------------------------------------------------------+
                
TRANSFEREE LIABILITIES
                40272 Estyre Vinocur Tucker, Transferee 1 2
                40273 David A. Vinocur, Transferee 1 2
                40274 Morris Vinocur, Transferee 1 2
                40275 Louis M. Vinocur, Transferee 1 2
                48226 The Pittsburgh Milk Company, Dissolved Apr. 1, 1949, $1,930.49 $2,109.36
                 to Jan. 24
                 1950
                
TRANSFEREE LIABILITIES
                48223 David A. Vinocur, Transferee 3 3 3
                48224 Louis M. Vinocur, Transferee 3 3 3
                48225 Morris Vinocur, Transferee 3 3 3
                48227 Estyre Vinocur Tucker, Transferee 3 3 3
                 {Mar
                 31, $9,773.54
                 1947
                 {Mar
                 31, 24,720.30
                 1948
                 David A. Vinocur and Morris Vinocur, Trustees {Mar.
                48228 for the benefit of Judy Tucker and Shirley 31,
                 Tucker, Transferees. 1949
                 {Apr.
                 1, 1, 930.49 $2,109.36
                 1949,
                 { to
                 Jan.
                 24,
                 {
                 1950.
                

The cases were consolidated in this Court for hearing. Several of the liabilities involved have been eliminated by stipulation of the parties:

In Docket Nos. 40272 and 48227, relating to transferee liabilities of Estyre Vinocur Tucker, it has been stipulated that, without prejudice

[26 T.C. 709]

to the contentions of the parties in Docket No. 48228, there are no liabilities due from the petitioner for any of the taxable periods involved. Decisions to that effect will be entered.

In all pending cases, it has been stipulated that the final short taxable period of the dissolved corporation extended from April 1, 1949, to January 24, 1950, and not from April 1, 1949, to October 31, 1949. Accordingly, in Docket Nos. 40271 and 40273-40275, the decisions will indicate that there is no deficiency or transferee liability, as the case may be, due from any of the petitioners therein for the period from April 1, 1949, to October 31, 1949.

Also, certain issues raised by the pleadings in the several cases have been eliminated, or deferred for settlement under Rule 50 of this Court:

Respondent has conceded, on brief, that the addition to tax under section 291(a), determined against the dissolved corporation and its transferees, in Docket Nos. 48223-48226 and 48228, should not be imposed.

It has been stipulated that the petitioners in Docket Nos. 40273-40275, 48223-48225, and 48228 are transferees of the Pittsburgh Milk Company, dissolved, within the meaning of section 311 of the Internal Revenue Code (1939); and that, as such, said petitioners are liable for any deficiency or deficiencies in income tax, which may be due in respect of said dissolved corporation for any or all of the taxable periods here involved, together with interest thereon according to law.

The amount of charitable contributions made by the corporation in each of its fiscal years ended in 1947 and 1948 has been stipulated; and such amounts will be given consideration in the computations under Rule 50.

The amounts, if any, allowable as carrybacks or carryovers in respect of net operating losses of the corporation also will be settled in the computations under Rule 50.

Issues raised in the pleadings respecting the Commissioner's adjustment of deductions for Pennsylvania corporate net income tax were not prosecuted; and they are deemed to have been abandoned.

The sole remaining issue for decision here is, whether allowances (sometimes called discounts or rebates) which the corporation made to certain purchasers of milk in willful violations of the Milk Control Law of Pennsylvania, should be applied either as reductions from the corporation's gross sales, or as deductions from its gross income.

FINDINGS OF FACT.

Certain facts have been stipulated, and these are incorporated herein by reference.

The Pittsburgh Milk Company was incorporated under the laws of the Commonwealth of Pennsylvania on January 31, 1928; and it

[26 T.C. 710]

was dissolved on January 24, 1950. During all periods here involved it had its principal office in...

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