Alabama-Georgia Syrup Co. v. Comm'r of Internal Revenue, Docket Nos. 82358-82360
| Decision Date | 31 July 1961 |
| Docket Number | Docket Nos. 82358-82360,83966,83967. |
| Citation | 36 T.C. 747 |
| Parties | ALABAMA-GEORGIA SYRUP COMPANY, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Fred S. Ball, Jr., Esq., and H. C. Kilpatrick, Esq., for the petitioners.
Frederick T. Carney, Esq., and Glen W. Gilson, Esq., for the respondent.
1. Brokerage commissions paid to sister of petitioner L. B. Whitfield (Louis) by suppliers of raw materials to petitioner Alabama-Georgia Syrup Company (Alaga) do not constitute income to Alaga or represent payment of dividends or interest by Alaga to Katherine.
2. Legal fees paid by Alaga and petitioner W. & W. Pickle and Canning Company (W. & W.) to their general counsel were not paid for the benefit of the estate of L. B. Whitfield, Sr. (Whitfield's estate), but are ordinary and necessary business expenses of Alaga and W. & W., deductible by these corporations, and no part of such amount constitutes dividends to Whitfield's estate.
3. Alaga is entitled to deduct travel expenses by its president, Louis, but not expenses incurred by Louis' wife who sometimes accompanied him on business trips. Amount determined to be expended on expenses of Louis' wife is $1,000 a year, and such amount constitutes a dividend to Louis. Respondent's disallowance of travel expense deduction to W. & W. sustained for failure of proof and amount disallowed held to constitute a dividend to Louis.
4. Salaries paid by Alaga to Louis in 1956, 1957, and 1958 are reasonable and deductible in full by Alaga.
5. The expenses of upkeep, maintenance, and depreciation of recreation facilities maintained by Alaga for the benefit of its employees and for use in entertaining customers deductible to the extent of 90 percent of the amount so spent after adjustment to capitalize an expenditure for shrubbery and allow depreciation on such capitalized amount on the basis of a 10-year useful life.
6. Amount expended by Alaga for a new entranceway and an aluminum door which replaced a wooden door that had rotted and been eaten by termites is a capital expenditure.
7. L. B. Whitfield, Sr., died in 1942, leaving a will which, after provisions as to debt payments and specific bequests, provided that a trust be created of the residuary estate with the income therefrom, and eventually the corpus, to be divided between his children, Louis and Katherine. At the time of his death Whitfield was indebted to Alaga in the amount of $331,564.90. A claim therefor was filed against the estate but the indebtedness was never paid by the estate. The estate was terminated by a court decree dated January 30, 1956, providing that 1,600 shares of Alaga stock be distributed to Katherine with approval of her offer to accept the amount of $605,000 to be paid by Alaga in redemption of her stock received from the estate and other stock owned by her, and the remainder of the estate assets including the other 1,600 shares of Alaga stock to be distributed to Louis subject to the $331,564.90 indebtedness owing by the estate to Alaga. Held: The closing of the estate on January 30, 1956, under the circumstances here present, in substance, constituted a cancellation of the estate's indebtedness to Alaga resulting in income to the estate in the full amount of the indebtedness, $331,564.90. One-half of the estate's income occasioned by the cancellation by Alaga of the indebtedness was distributed or distributable to Louis within the provisions of sec. 662, I.R.C. 1954.
Respondent determined deficiencies in income tax of the petitioners for the years and in the amounts as follows:
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¦Docket No.¦Petitioners ¦ ¦Year ¦Deficiency ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------------------¦
¦ ¦ ¦ ¦Fiscal year ended Sept. 30— ¦
+----------+-------------------------------+-+--------------------------------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦82358 ¦Alabama-Georgia Syrup Co ¦(¦1954 ¦$15,305.06 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦(¦1955 ¦7,872.60 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------------------¦
¦ ¦ ¦ ¦Fiscal year ended Mar. 31—- ¦
+----------+-------------------------------+-+--------------------------------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦82359 ¦W. & W. Pickle and Canning Co. ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦1955 ¦1,027.65 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦Calendar years ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦82360 ¦L. B.and Virginia G. Whitefield¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦(¦1954 ¦4,259.48 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦(¦1955 ¦2,157.20 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦(¦1956 ¦131,449.68 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦Calendar years ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦83966 ¦L. B. and Virginia G. ¦ ¦ ¦ ¦
¦ ¦Whitefield ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦(¦1957 ¦3,634.800 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦(¦1958 ¦4,545.67 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------------------¦
¦ ¦ ¦ ¦Fiscal year ended Sept. 30—- ¦
+----------+-------------------------------+-+--------------------------------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦83967 ¦Alabama-Georgia Syrup Co ¦(¦1957 ¦3,961.61 ¦
+----------+-------------------------------+-+--------------------+-----------¦
¦ ¦ ¦(¦1958 ¦12,219.04 ¦
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Although respondent determined no deficiency against Alabama-Georgia Syrup Company for its fiscal year ended September 30, 1956, or against W. & W. Pickle and Canning Company for its fiscal year ended March 31, 1957, these fiscal years of the respective petitioners are involved herein because of claimed loss carrybacks to the fiscal years 1954 and 1955, respectively.
The issues for decision are:
With respect to petitioner Alabama-Georgia Syrup Company: (1) The correctness of respondent's determination that petitioner realized income in its fiscal years 1954, 1955, and 1956 from brokerage commissions paid by its suppliers to one of its stockholders who was also the sister of its president; (2) whether portions of the deductions claimed by petitioner for legal expenses in its fiscal years 1954, 1955, and 1956 were properly disallowed by respondent as representing amounts paid for the benefit of the estate of L. B. Whitfield, Sr., petitioner's major stockholders during those years; (3) whether deductions claimed by petitioner as travel expenses during its fiscal years 1954 through 1958 and expenses of operating and maintaining a recreational center (Alaga Lodge) in its fiscal years 1957 and 1958 were excessive as determined by respondent; (4) whether the salary paid to petitioner's president in 1956, 1957, and 1958 was in excess of a reasonable amount; and (5) whether the cost of remodeling the entrance to petitioner's plant office represented a capital expenditure or a deductible expense for repairs.
With respect to the petitioner, W. &...
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