50 T.C. 317 (1968)
FABER CEMENT BLOCK CO., INC., PETITIONER
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
United States Tax Court.
May 20, 1968
Samuel J. Foosaner, for the petitioner.
Gerald Backer, for the respondent.
Petitioner's liquid assets were fully committed to the reasonable needs of its business, as reflected in sufficiently definite plans for expansion and working capital requirements, to justify the retention of its entire accumulation of earnings and profits during 1961, 1962, and 1963. Consequently, petitioner was not liable for the surtax imposed by sec. 531, I.R.C. 1954.
Respondent determined deficiencies in accumulated earnings taxes for the taxable years 1961, 1962, and 1963 in the respective amounts of $50,928.91, $34,317.22, and $55,824.07. The sole question for our consideration is whether petitioner was availed of for the purpose of avoiding Federal income taxes with respect to its shareholders.
FINDINGS OF FACT
Some of the facts have been stipulated. Those facts and the exhibits attached thereto are hereby incorporated by this reference.
Petitioner, Faber Cement Block Co., Inc. (hereinafter referred to as Faber Block), is a New Jersey corporation engaged in the business of manufacturing and selling cement and cinder blocks. It had its principal place of business at the time the petition herein was filed at Paramus, N.J. Petitioner's books and tax returns are kept and filed on the calendar year, accrual basis. Timely Federal corporate income tax returns were filed for 1961, 1962, and 1963 with the district director of internal revenue, Newark, N.J.
Beginning sometime around 1920, Albert J. Faber and Gerhardt P. Faber operated the business as a partnership with their father. In 1928, the partnership was incorporated. Since 1938, Faber Block has been located on Route 17, Paramus, N.J., approximately a mile and a half from its location prior to that time.
At all times material herein, Gerhardt P. Faber was petitioner's president, his wife, Elsie, vice president, and Albert J. Faber, secretary-treasurer, the latter being the chief administrative officer of the company. These three parties also made up petitioner's board of directors. Board meetings were sometimes attended by Emil M. Wulster and Samuel J. Foosaner, respectively, general and special tax counsel to petitioner before and during the years in issue. Foosaner prepared certain corporate minutes for board meetings held during such years.
Prior to 1958, the outstanding stock of Faber Block was held as follows:
|| Number of shares
| Gerhardt P. Faber
|| 33 1/3
In 1958, a recapitalization of Faber Block was effected, resulting in three classes of authorized stock, as follows: 1,000 shares $100 par 6 percent cumulative preferred stock; 5,000 shares no-par class A common stock (voting); 4,000 shares no-par class B common stock (non-voting). Under the new plan, voting privileges were vested exclusively in the class A stockholders. Preferred shareholders were to have preference upon liquidation to the extent of the par value of the stock plus any unpaid dividends. Thereafter, class A and class B shareholders would share ratably in the distribution. After payment of a 6-percent dividend on a cumulative basis to preferred shareholders, class A and class B holders were to be entitled on an equal basis to such dividends as the board of directors might declare. Pursuant to such plan, each share of old stock was exchanged for 10 shares of class A and 20 Page 319 shares of class B. No preferred stock was ever issued. Immediately following the recapitalization, the issued and outstanding stock of petitioner stood as follows:
|| Class A common (voting) shares
|| Class B common (nonvoting) shares
| Albert J. Faber
| Gerhardt P. Faber
At the stated dates during the years in issue, the outstanding class B stock was held by the following individuals in the following amounts:
| Individuals 
|| Dec. 1,
|| Dec. 24, 1962
| Gerhardt P. Faber
| Jesse and Marilyn Douglas in trust for Calvin Douglas
| Jesse and Marilyn Douglas in trust for Dana Lynn Douglas
| Jesse and Marilyn Douglas in trust for Debra Ann Douglas
| Christopher W. Farrell
| Christopher W. and Doris Farrell in trust for Stephen Farrell
| Christopher W. and Doris Farell in trust for Donald Farrell
| Total class B stock outstanding
The Faber brothers had started in the cement and cinder block business on a part-time basis with very limited facilities. The business prospered, but, until late 1957, petitioner operated with hand machinery and increasingly inadequate facilities. Moreover, its equipment over the years, including the taxable periods involved herein, had been subjected to heavy use. In 1957, Faber Block opened expanded facilities at the same location in Paramus in order to meet the increasing demand for its products and to provide safer working conditions for its employees. Prior to such expansion, petitioner had been required to, and did, obtain a variance from the Paramus Zoning Board because of a local ordinance passed in 1956 which prohibited cement and cinder Page 320 block manufacture, thus constituting petitioner's plant a nonconforming use. Faber Block did a substantial amount of business in Rockland County, N.Y. In 1957, it decided to build a plant in Monsey, N.Y. Initially, the cost of such plant was estimated at approximately $500,000. Construction was commenced in 1959 and completed in 1960 at an approximate total cost of $450,000. Such construction was financed in part by an $85,000 mortgage, the entire amount of which was paid off within 2 years. Beginning in 1961 and throughout the years in issue, plans for further expansion were discussed by the officers and directors of petitioner. The minutes of a board meeting held March 1, 1961, read:
Mr. Albert J. Faber stated, at the outset of the meeting, that the Company's expansion needs were such that consideration should be given to other possible sites on Route 17 for plant facilities if neighbors objections or other problems prevented new construction on the present site of the Company. The other Directors were in agreement with this thought and it was concluded that such investigation should be conducted.
The results of such ‘ investigation’ were enunciated in the minutes of a December 14, 1961, board meeting, where Albert Faber reported that he could find no property on Route 17 adequate to serve petitioner's needs unless it was willing to spend in excess of $400,000 for such land. The directors thereupon resolved to ‘ make a further study of the possibility of expanding its plant facilities in either Monsey, N.Y., or Paramus, N.J., or in both locations, rather than seek new land at prohibitive costs at this time.’ The minutes of a board meeting on December 20, 1962, reflect further consideration of expansion plans with particular reference to the cost thereof based upon the statement of Albert Faber that ‘ in his opinion, to provide the expansion of the plant facilities and the necessary new machinery and equipment could require somewhere between $500,000 and $750,000.’ The minutes of a board meeting held December 19, 1963, contained a resolution to the effect that Faber Block proceed ‘ to engage such expert assistance as might be necessary to prepare plans for expanding the plant facilities in Paramus, it appearing that Paramus was the most logical location.’ Petitioner had been somewhat skeptical about expanding the existing Paramus plant, mainly because it was a non-conforming use under the local zoning ordinance and, consequently, a variance had to be secured before any expansion could be undertaken. Despite the objections and resistance displayed by neighboring residents, Albert Faber was convinced that the necessary variance could eventually be obtained. He had discussed petitioner's proposed expansion at various times since 1961 with the Mayor of Paramus, who had recommended deferring application for a variance until local opposition had toned down. Page 321 In addition to plans for expansion of petitioner's plant, there was recognition of the need to acquire more modern equipment for existing facilities, as reflected in the minutes of meetings of petitioner's board of directors as follows:
| Mar. 1, 1961
|| Four trucks plus ancillary equipment--no cost stated.
| Mar. 28, 1962
|| Loader, cement bin and conveyor, trucks and trailers-- estimated cost $85,100.
| Oct. 3, 1962
|| Grinding machine and trucks--estimated cost $29,500.
| Dec. 19, 1963
|| Review of acquisitions made during 1963 having an aggregate cost of $130,000.
Upon advice of its general course, petitioner embarked on a program of building up the commercial character of the property contiguous to the existing plantsite. It was hoped that such program would provide a ‘ buffer zone’ of friendly neighbors around petitioner's plant to counteract the pressure of complaining neighbors and thus help to change the tides of local opposition to the dust and noise emanating from petitioner's operations. Pursuant to this plan, additional land was purchased and developed for commercial tenants by Faber Bros., Inc. (hereinafter referred to as Faber Bros.), a New Jersey corporation...