Kamin Chevrolet Co. v. Comm'r of Internal Revenue
| Decision Date | 10 July 1944 |
| Docket Number | Docket No. 371. |
| Citation | 3 T.C. 1076 |
| Parties | KAMIN CHEVROLET COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
The petitioner filed an excess profits tax return for the calendar year 1940. On June 24, 1940, all of the stockholders of the petitioner entered into an agreement consenting to the dissolution and winding up of its affairs and on the same date the board of directors adopted a like resolution. Pursuant to such resolution the petitioner, on June 29, 1940, distributed all of its assets to its stockholders, subject to its liabilities, but did not surrender its charter. After June 30, 1940, the corporation was an empty shell without capital, income, or expenses. The respondent treated the return filed as one made for the period January 1 to June 30, 1940; determined the excess profits net income for the twelve-month period as provided by section 711(a)(3) of the Internal Revenue Code; reduced the excess profits credit as provided by section 713(a)(1)(C); and determined the excess profits tax liability accordingly. Held, that the respondent did not err in treating the excess profits tax return filed as one covering only the period January 1 to June 30, 1940, but that he did err in reducing the excess profits credit by the application of section 713(a)(1)(C). Harry W. Kamin, Esq., for the petitioner.
Homer F. Benson, Esq., for the respondent.
This is a proceeding for the redetermination of a deficiency in excess profits tax for 1940 in the amount of $633.69. The petitioner alleges as follows:
(a) The Commissioner erred in interpreting the return filed as a return for a fractional part of the year 1940 and placing the same on an annual basis.
(b) The Commissioner erred in deducting for excess profits tax credit an amount of $754.10 representing 6 percent of the net capital reduction.
The petitioner is a Pennsylvania corporation, incorporated on October 18, 1935, with its principal office in Pittsburgh. It filed required tax returns for the calendar year 1940 with the collector of internal revenue at Pittsburgh.
Its corporate income, declared value excess profits, and defense tax return (Form 1120) showed net income of $7,671.12. In the return it is stated: ‘ASSETS AND LIABILITIES SOLD TO STOCKHOLDERS JUNE 30, 1940, CORPORATION INACTIVE.‘
Its corporation excess profits tax return (Form 1121) for the calendar year 1940 showed excess profits net income of $6,459.66. No excess profits tax liability was disclosed thereby.
In the determination of the deficiency the respondent treated the excess profits tax return as one covering the period January 1 to June 30, 1940, and found the correct excess profits net income for that period to be $6,487.41. The petitioner does not question the correctness of the determination of the amount of the excess profits net income for such period. The respondent placed the net income on an annual basis in accordance with the provisions of section 711(a)(3) of the Internal Revenue Code and found that the excess profits net income for the 12-month period ended June 30, 1940, was in the amount of $13,046.11. The petitioner does not question the correctness of this excess profits net income, provided the return filed should be considered as a return for the period January 1 to June 30, 1940. The respondent also found that on June 30, 1940, the petitioner, as a result of the distribution of its assets, effected a net capital reduction of $12,568.13, which was arrived at by multiplying its total capital of $25,000 by 184, the number of days the petitioner was out of business during the year 1940, by dividing by 366, the number of days in the calendar year. By the application of section 713(a)(1)(C) of the code the respondent effected a reduction in petitioner's excess profits credit of $754.10, or 6 percent of the petitioner's net capital reduction.
On June 24, 1940, all the stockholders of record of the petitioner entered into an agreement consenting to the dissolution and winding up of the affairs of the petitioner. A special meeting of stockholders of petitioner was held on that date and it was duly resolved as follows: (1) That the petitioner be dissolved and the affairs of the company wound up, and (2) that the petitioner sell, transfer, assign, and deliver to the shareholders all the assets of the petitioner, subject to all of its debts. On June 26, 1940, a special meeting of the board of directors of petitioner was held, at which the foregoing resolutions were adopted and the proper officers of petitioner were authorized to make a complete liquidation of the assets of petitioner in accordance with the aforesaid resolution.
The assets of the petitioner were transferred in accordance with the resolution on June 29, 1940, resulting in a complete liquidation of the assets and business of the petitioner. The officers of petitioner did not proceed with the dissolution of the company and the corporate charter of petitioner was not surrendered, but instead its corporate charter continued in existence during and subsequent to the calendar year 1940.
The first question presented is whether the respondent correctly treated the excess profits tax return filed by the petitioner for 1940 as a return for the 6-month period ended June 30 rather than one for the calendar year. The petitioner submits that since it was in existence for the entire calendar year 1940 it was required to file a return covering the entire calendar year and that the respondent was in error in treating the return filed as one for only a fractional part of the year.
Section 48 of the Internal Revenue Code defines a taxable year as meaning:
* * * the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under this Part. ‘Taxable year‘ includes, in the case of a return made for a fractional part of a year under the provisions of this chapter or under regulations prescribed by the Commissioner with the approval of the Secretary, the period for which such return is made.
Section 711(a) of the code, added by section 201 of the Second Revenue Act of 1940, and paragraph (3) of that subdivision, as amended by section 213 of the Revenue Act of 1942, read in material part as follows:
(a) TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1939.— The excess profits net income for any taxable year beginning after December 31, 1939, shall be the normal-tax net income, as defined in section 13(a)(2), for such year except that the following adjustments shall be made:
(3) TAXABLE YEAR LESS THAN TWELVE MONTHS.—
(A) GENERAL RULE.— If the taxable year is a period of less than twelve months the excess profits net income for such taxable year (referred to in this paragraph as the ‘short taxable year‘) shall be placed on an annual basis by multiplying the amount thereof by the number of days in the twelve months ending with the close of the short taxable year and dividing by the number of days in the short taxable year. The tax shall be such part of the tax computed on such annual basis as the number of days in the short taxable year is of the number of days in the twelve months ending with the close of the short taxable year.
(B) EXCEPTION.— If the taxpayer establishes its adjusted excess profits net income for the period of twelve months beginning with the first day of the short taxable year, computed as if such twelve-month period were a taxable year, under the law applicable to the short taxable year, and using the credits applicable in determining the adjusted excess profits net income for such short taxable year, then the tax for the short taxable year shall be reduced to an amount which is such part of the tax computed on such adjusted excess profits net income so established as the excess profits net income for the short taxable year is of the excess profits net income for such twelve-month period. The taxpayer (other than a taxpayer to which the next sentence applies) shall compute the tax and file its return without the application of this subparagraph. If, prior to one year from the date of the beginning of the short taxable year, the taxpayer has disposed of substantially all its assets, in lieu of the twelve-month period provided in the preceding...
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