Pan American Eutectic Welding Alloys Co. v. Comm'r of Internal Revenue, Docket Nos. 72544
| Decision Date | 17 May 1961 |
| Docket Number | 74765.,Docket Nos. 72544 |
| Citation | 36 T.C. 284 |
| Parties | PAN AMERICAN EUTECTIC WELDING ALLOYS CO., INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Morton L. Deitch, Esq., and Lewis G. Cole, Esq., for the petitioner.
Charles M. Greenspan, Esq., and Warren S. Shine, Esq., for the respondent.
The petitioner was organized as a wholly owned subsidiary of a United States corporation for the purpose of selling in Western Hemisphere countries goods produced by another company owned by the same interests and later by the parent. The petitioner bought such goods from such other company and later from the parent, and sold them to a distributor in a foreign Western Hemisphere country. The agreement between the petitioner and the distributor provided that the petitioner should retain title and risk of loss until the goods reached the foreign port of delivery. Held, that all of petitioner's income was derived from sources outside the United States and that it qualifies as a Western Hemisphere trade corporation under 109 of the Internal Revenue Code of 1939 and section 921 of the Internal Revenue Code of 1954.
The respondent determined deficiencies in income and excess profits taxes for the years and in the amounts as follows:
+------------------------------------------------------------+
¦Docket¦Taxable year ended Oct. 31—¦Income tax¦Excess profits¦
+------+---------------------------+----------+--------------¦
¦No. ¦ ¦ ¦tax ¦
+------+---------------------------+----------+--------------¦
¦ ¦ ¦ ¦ ¦
+------+---------------------------+----------+--------------¦
¦72544 ¦1952 ¦$12,301.60¦$14,213.94 ¦
+------+---------------------------+----------+--------------¦
¦72544 ¦1953 ¦1,591.99 ¦None ¦
+------+---------------------------+----------+--------------¦
¦72544 ¦1954 ¦4,907.43 ¦407.16 ¦
+------+---------------------------+----------+--------------¦
¦ ¦(1955 ¦6,507.87 ¦ ¦
+------+---------------------------+----------+--------------¦
¦74765 ¦(1956 ¦21,251.56 ¦ ¦
+------+---------------------------+----------+--------------¦
¦ ¦ ¦ ¦ ¦
+------------------------------------------------------------+
The only issue is whether the petitioner qualifies as a Western Hemisphere trade corporation within the meaning of section 109 of the Internal Revenue Code of 1939 and section 921 of the Internal Revenue Code of 1954 and is therefore entitled to the credit provided by section 26(i) of the 1939 Code and the special deduction provided by section 922 of the 1954 Code.
The respondent by stipulation concedes that there are no deficiencies in excess profits tax for the taxable years ended October 31, 1952, and October 31, 1954.
Some of the facts are stipulated and are incorporated herein by this reference.
The petitioner is a corporation organized on April 30, 1947, under the laws of the State of New York, with its principal place of business in the city of New York. It is engaged in the business of buying and selling welding rods and related materials. It keeps its books and prepares its income tax returns on the basis of a fiscal year ending October 31, and employs an accrual method of accounting. Its Federal income tax returns for the taxable years ended October 31, 1952, through October 31, 1956, were filed with the director of internal revenue for the second New York district.
The petitioner is, and during each of the years in controversy was, a wholly owned subsidiary of Eutectic Welding Alloys Corp., hereinafter referred to as EWAC, a corporation organized on January 15, 1946, under the laws of the State of New York. During the fiscal year ended October 31, 1952, the capitalization of the parent was represented entirely by common stock which was owned 55 percent by Rene D. Wasserman and 45 percent by his then wife, Marie Rose Wasserman. On November 1, 1952, the parent was recapitalized and thereafter the entire amount of common stock was owned by Wasserman and the preferred stock was owned by trustee of a trust created by his then wife, the trustees being Sigmund Wasserman and Jose Hassid. Rene D. Wasserman was and is president of both the petitioner and EWAC.
Rene Wasserman emigrated to the United States from Switzerland in 1940 and organized a business for the purpose of manufacturing specialty welding rods, which are materials used for the purpose of welding breaks and cracks in metal. This organization and its successor, Alpine Metals Manufacturing Co., were sole proprietorships. The sole proprietorship was discontinued in October 1955, when its functions were assumed by EWAC.
The petitioner was formed on the advice of counsel for the purpose of selling the specialty welding products manufactured by Alpine Metals Manufacturing Co., for ultimate consumption in Canada, Central America, and South America. During each of the years in controversy all of petitioner's business was done in North, Central, and South America and in the West Indies. It purchased the products from Alpine Metals Manufacturing Co. until that individual proprietorship discontinued business and thereafter from EWAC.
EWAC also set up a corporation called Low Temperature Welding Alloys Corp. for the purpose of selling these products for consumption in countries outside the Western Hemisphere, and a corporation called American Eutectic Welding Sales Co. to sell such products for consumption in the United States.
The petitioner, EWAC, and Alpine Metals Manufacturing Co. were all located at 40-40 172d Street, Flushing, New York, which property consisted of sizable factory and office buildings. Overhead service charges, such as bookkeeping and office rent, telephone and postage expense, and insurance on goods in transit, were paid by EWAC and allocated to the petitioner, to the sole proprietorship, and to EWAC's other wholly owned subsidiaries. Other expenses were paid directly by petitioner. The products purchased by the petitioner and the other subsidiaries from EWAC and from Alpine Metals Manufacturing Co. were sold to them at 7 percent above cost.
The petitioner made the following sales during the taxable years involved:
Eutectic International S.A. (E.I.S.A.), was a corporation organized under the laws of the Republic of Panama in 1947. It was dissolved on June 1, 1953, and a corporation known as Metallica International S.A. (M.I.S.A.), a corporation also organized under the laws of the Republic of Panama in 1953 by the same interests, continued the same activities in the same manner. These two corporations are sometimes hereinafter referred to collectively as MISA. MISA was owned 22 percent by Rene Wasserman's father and 78 percent by other Swiss interests.
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