72 F.2d 330 (8th Cir. 1934), 9858, Helvering v. Kendrick Coal & Dock Co.

Docket Nº:9858.
Citation:72 F.2d 330
Party Name:HELVERING, Commissioner of Internal Revenue, v. KENDRICK COAL & DOCK CO.
Case Date:June 18, 1934
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 330

72 F.2d 330 (8th Cir. 1934)

HELVERING, Commissioner of Internal Revenue,



No. 9858.

United States Court of Appeals, Eighth Circuit.

June 18, 1934

Helen R. Carloss, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for petitioner.

Stanley B. Houck, of Minneapolis, Minn. (W. Yale Smiley, of Minneapolis, Minn., on the brief), for respondent.

Page 331


WOODROUGH, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals, which found the respondent taxpayer not liable for an asserted income and profits tax for the year 1920.

The opinion of this court on the first review is reported in 29 F.2d 559. The first opinion of the Board of Tax Appeals appears in 6 B.T.A. 1092.

Respondent is a Minnesota corporation organized in July, 1916, with a capital stock of $50,000 divided into 500 shares of a par value of $100 each. Its entire capital stock was issued to Edward S. Kendrick, Jr., with the exception of qualifying shares to directors. Mr. Kendrick operated and managed the business of the corporation, the sale of coal at wholesale, at Minneapolis, Minn. Prior to June, 1920, Mr. Kendrick considered expansion, particularly through obtaining water transportation as necessary to the successful operation of the corporation, and began negotiations with that end in view. In May, 1920, at a special stockholders' meeting, the officers of respondent were authorized to enter into an agreement with certain other persons interested in the organization of a new corporation to be known as the Inland Coal & Dock Company, under the terms of which the respondent would transfer all of its furniture, fixtures, good will, contracts, and profits to be derived from existing contracts for the sale of coal with estimated profits of $40,000 in exchange for $50,000 worth of stock in the new company, the latter to assume all liabilities or losses which might arise in connection with the coal contracts. The agreement for the exchange of stock for assets was later changed so that respondent should sell its assets to the new company for $50,000 cash and respondent would buy for cash $50,000 of the capital stock of the new company, and, as so modified, it was carried out; a bill of sale was executed by respondent transferring to the other corporation its office furniture and fixtures, good will, and all profits to be derived from certain described contracts of respondent for the sale of coal. None of the accounts receivable or cash in the treasury was transferred; the surplus of the taxpayer at the date of the transfer was between $60,000 and $70,000 in cash and accounts receivable. As consideration for the transfer the Inland Coal & Dock Company delivered to respondent on June 12, 1920, a check for $50,000 and on the same date respondent issued its check for $50,000 in payment for 500 shares of common stock of the Inland Coal & Dock Company.

The Inland Coal & Dock Company was incorporated in Ohio with an authorized capital stock of 4,000 shares of preferred stock of $100 a share and 6,000 shares of common stock of no par value. All of the common stock was subscribed for at $100 a share. Respondent itself purchased 700 shares for $70,000 in addition to the 500 shares acquired as above indicated. Kendrick individually purchased 600 shares of the common stock for $60,000.

Certificates of common stock provided that their transfer was subject to the provisions of the 'Code of Regulations' of the company, and that the shares were 'accepted and held subject to all the provisions of the Code of Regulations and to the designations, preferences and voting powers, or restrictions or qualifications thereof, of the preferred stock, which are set forth in the reverse hereof. ' There is nothing in the record to disclose the nature of the 'Code of Regulations.'

None of the common stock has ever been sold by the original purchasers, and no dividend has been paid by the Inland Coal & Dock Company.

Immediately after its incorporation the Inland Coal & Dock Company acquired a dock at Duluth, Minn., which Kendrick testified was, at the time...

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