30 T.C. 156 (1958), 60338, Trianon Hotel Co. v. C.I.R.
|Docket Nº:||60338, 60339, 60341, 63700.|
|Citation:||30 T.C. 156|
|Opinion Judge:||HARRON, Judge:|
|Party Name:||TRIANON HOTEL COMPANY, PETITIONER, ET AL., v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.|
|Attorney:||Joseph A. Hoskins, Esq., Jay O. Kramer, Esq., and Harlow B. King, Esq., for the petitioners. Marvin E. Hagen, Esq., for the respondent.|
|Case Date:||April 30, 1958|
|Court:||United States Tax Court|
Trianon Hotel Company acquired all of the outstanding stock of the Allis Hotel Corporation and liquidated the latter corporation about a year later, thereby acquiring the liquidated corporation's assets. Trianon distributed $2,342,925 in cash and notes to the shareholders of Allis Corporation in acquiring their stock. Allis, Shanberg, and Woolf, on the date of the transfer of their Allis Corporation stock to Trianon, together owned approximately 82.57 per cent of the outstanding stock of Allis Corporation, and approximately 79.22 per cent of the outstanding stock of Trianon. Amounts distributed to Allis, Shanberg, and Woolf for their Allis Corporation stock, held, on the facts, to result in capital gain and not in a distribution essentially the equivalent of a taxable dividend, under the applicable sections of the 1939 Code. Held, further, the fair market value of the stock of Allis Corporation, on the date of the transfer to Trianon, was $325 per share. Held, further, on the facts, Trianon acquired a basis for the assets of Allis Corporation under the provisions of sections 112(b)(6) and 113(a)(15), 1939 Code.
In Docket No. 60338, Trianon Hotel Company, the Commissioner determined for the taxable year 1952, deficiencies in income tax and excess profits tax in the total amount of $210,602.94. The Commissioner has made claim under section 272(e), 1939 Code, for increase in the deficiency, the amount to be computed under Rule 50.
The chief issue in Docket No. 60338 is the basis to Trianon Hotel Company, for purposes of depreciation, amortization, and sale or other disposition, of the assets it acquired through the liquidation of the Allis Hotel Corporation whose stock was acquired by Trianon Hotel Company.
In Docket Nos. 60339, 60341, and 63700, the Commissioner determined deficiencies in income tax for the taxable years and in the amounts set forth below:
Docket No. Petitioner Years Deficiencies
60339 Barney L. Allis 1950 $674,530.46
( 1947 51,293.75
( 1948 23,371.30
60341 Herbert M. Woolf ( 1949 28,104.10
( 1950 260,381.78
( 1953 34,167.80
63700 Estate of Meyer Shanberg 1950 300,107.84
In the cases of the above individual petitioners the main issue is whether in a transaction under which each sold, in 1950, shares of the common stock of the Allis Hotel Corporation to Trianon Hotel Company, the proceeds of the sales constituted dividends taxable as ordinary income, as the Commissioner determined, or long-term capital gain. In Docket No. 60341, Herbert M. Woolf, all issues with respect to the years 1947, 1948, 1949, and 1953 have been settled by agreement of the parties, which agreement also disposes of one of the adjustments for 1950 which was made by the Commissioner. The remaining issue, therefore, involves only the taxable year 1950. FINDINGS OF FACT. Barney L. Allis and Herbert M. Woolf are residents of Kansas City, Missouri. They filed their respective individual returns for the taxable years with the collector of internal revenue for the sixth district of Missouri. Meyer B. Shanberg was a resident of Miami Beach, Florida, during 1950. He filed a joint return for 1950 with the collector of internal revenue for the district of Florida. Meyer B. Shanberg died May 12, 1953. He was survived by his wife, now Pauline Shanberg Behrman, who is an executrix of his estate together with Chemical Corn Exchange Bank. Page 158 Trianon Hotel Company, hereinafter referred to as Trianon, is a corporation which maintains its principal office in Kansas City, Missouri. Its income tax return for the year 1952 was filed with the collector of internal revenue for the sixth district of Missouri. In 1930, a group of investors, who were stockholders in Progressive Building Company, constructed the Allis Hotel in Wichita, Kansas. Barney L. Allis organized the Allis Hotel Corporation (hereinafter called Allis Corporation) under the laws of Kansas on May 28, 1930. Thereafter, in 1931, Progressive Building Company leased the hotel property to Allis Corporation which operated the hotel. Upon the expiration of the lease in 1937, the Allis Corporation purchased the hotel property from Progressive Building Company, and it continued to own and operate the hotel until the transaction which is involved here. Barney Allis (hereinafter called Allis) and Meyer Shanberg (hereinafter called Shanberg) were officers and directors of Allis Corporation at all times, and Herbert Woolf (hereinafter called Woolf) was a member of the board of directors in 1930, 1931, and during the years 1934-1951. Under circumstances which are described hereinafter, Allis Corporation was liquidated and dissolved on December 31, 1951. Allis was president of Allis Corporation, and a member of its board of directors from the time of its organization until its dissolution, and he was also treasurer during the periods 1930-1940 and 1948-1951. Shanberg was treasurer during the years 1941-1947, and he was a member of the board of directors during the years 1930, 1931, and 1934 through 1939. The authorized capital stock of the Allis Corporation consisted of 2,500 shares of preferred stock having a par value of $100 per share, and 7,500 shares of no-par common stock. All of the preferred stock was retired in 1939. The common stock was carried on the books at a value of $1 per share, at all times. As of December 31, 1930, there were 1,765 shares of preferred stock of Allis Corporation outstanding, and there were 6,991 3/4 shares of common stock outstanding. Allis Hotel Company, which had no connection with Allis Hotel Corporation and is not involved in these cases, owned 611 3/4 shares of the preferred stock of Allis Corporation; Shanberg owned 550 shares; Woolf owned 350 shares; W. R. LeClerc owned 100 shares; Charles S. Allis owned 53 1/4 shares; and Arthur Miller and F. H. Reid each owned 50 shares. As of December 31, 1938, there were 1,375 shares of preferred stock outstanding which were owned as follows: Barney L. Allis owned 468 6325/7100 shares; Edward Shanberg owned 232 700/1775 shares; Woolf and Pauline Shanberg each owned 193 1175/1775 shares; Page 159 W. R. LeClerc owned 77 825/1775 shares; Charles S. Allis owned 46 1775/7100 shares; Edna Leibman, Gertrude Lighton, Arthur Miller, and F. H. Reid each owned 38 1300/1775 shares; and H. C. Nanson, Jr. owned 7 1325/1775. As of December 31, 1930, the outstanding common stock, 6,991 3/4 shares, were held as follows: Allis Hotel Company owned 3,821 shares; Meyer Shanberg owned 1,455 shares; Woolf owned 1,018 1/2 shares; W. C. LeClerc owned 291 shares; Charles S. Allis owned 154 shares; Arthur Miller owned 145 1/2 shares; H. Simon owned 72 3/4 shares; H. C. Nanson owned 25 shares; and Barney Allis, Earl Evans, G. A. Laws, F. H. Reid, and H. L. Weaver each owned 1 share. In 1931, the outstanding common stock increased to 7,209 shares, which were the number of shares of common stock outstanding throughout the succeeding years until the end of 1951. The outstanding common stock as of December 31, 1931, December 31, 1941, December 31, 1943, and December 31, 1949, and December 31, 1950, was held in the amounts and by the stockholders shown in the following schedule. Under circumstances which are set forth thereinafter, Trianon Hotel Company purchased 7,209 shares of common stock which it held until Allis Corporation was dissolved on December 31, 1951.
ALLIS HOTEL CORPORATION OUTSTANDING COMMON STOCK
1931 1941 1943 1949 1950
Allis Hotel Co 3,821
M. B. Shanberg 1,600 1/2 1,600 1/2 1,600 1/2 1,600 1/2
H. M. Woolf 727 1/2 727 1/2 727 1/2 727 1/2
W. C. LeClerc 291 291 291
Caroline LeClerc 291
Chas. S. Allis 154 154 154 154
Edna Liebman 145 1/2 145 1/2 145 1/2 145 1/2
G. Lighton 145 1/2 145 1/2 145 1/2 145 1/2
A. Miller 145 1/2 145 1/2 145 1/2 145 1/2
F. H. Reid 145 1/2 145 1/2 145 1/2 145 1/2
H. C. Nanson 29 29 29 29
E. W. Evans 1
G. A. Laws 1
H. L. Weaver 1
Barney Allis 1 3,825 3,625 3,625
Dorothy Kovitz 100 100
Helen Starling 100 100
Trianon Hotel Co. 7,209
Total 7,209 7,209 7,209 7,209 7,209
The relationships of those who held common stock of Allis Corporation as of December 31, 1949, are as follows, as far as the record shows: Charles Allis is a brother of Barney Allis, and Dorothy Kovitz and Helen Starling are daughters of Barney Allis. Meyer Shanberg was a cousin of Barney Allis. Edna Liebman and Gertrude Lighton are sisters of Herbert Woolf. W. C. LeClerc was a business associate of Page 160 Barney Allis for over 20 years, and Caroline LeClerc, presumably, is his wife. Arthur Miller is an attorney for Barney Allis and was an attorney for Allis Corporation. H. C. Nanson was an employee of Barney Allis. F. H. Reid was a business associate of Woolf. Allis Corporation owned 4 lots and held a 98- or 99-year lease on 3 lots, all of which were contiguous...
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