In re Estate of Schneider

Decision Date15 April 1987
Docket NumberDocket No. 6234-79
Citation88 T.C. 906,88 T.C. No. 50
PartiesESTATE OF AL J. SCHNEIDER, DONALD J. SCHNEIDER, ET AL., PERSONAL REPRESENTATIVES, AND AGNES SCHNEIDER, PetitionersCOMMISSIONER OF INTERNAL REVENUE, Respondent
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

X, a corporation controlled by A, was a holding company for a group of affiliated corporations. X established a stock bonus plan, pursuant to which employees of the affiliated corporations could elect to use some or all of their cash bonuses to ‘purchase‘ Class B nonvoting stock from A. For each employee who elected to receive stock, corporation Y, a wholly-owned subsidiary of X, issued two checks. One check represented the cash portion of the bonus, net of withholding taxes; the other check represented the book value of the shares that the employee elected to purchase from A. This latter check was issued with a restrictive endorsement to A, requiring the employee to sign over the check to A in order to receive the stock portion of the bonus. The stock certificates that were issued to the employees by X include a legend that the shares are subject to the conditions and restrictions on transferability under the stock bonus plan established by X. No such restriction appeared on the

HELD: (1) As to A, this series of transactions, in substance, constitutes a redemption of stock from A by X. Secs. 302, 317(b), I.R.C. 1954.

(2) The amounts received by A are essentially equivalent to dividends and are taxable as distributions. Secs. 302(d), 301, I.R.C. 1954. Robert E. Nelson and Arthur Kaftan, for the petitioners.

Edward J. Roepsch, for the respondent.

CHABOT, JUDGE:

Respondent determined deficiencies in Federal individual income tax against Al J. Schneider and Agnes Schneider for 1975 and 1976 in the amounts of $17,745.84 and $21,415.00, respectively. After concessions by both sides, the issues for decision are as follows:

(1) Whether certain dispositions of stock by Al J. Schneider constitute (a) sales of stock by him to employees or (b) redemptions of the stock from him.

(2) If the dispositions are redemptions, then whether the redemptions are essentially equivalent to dividends.

(3) Alternatively, whether the dispositions are taxable under section 83. 1

FINDINGS OF FACT

Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.

When the petition was filed in the instant case, petitioners Al J. Schneider (hereinafter sometimes referred to as ‘Al‘) and Agnes Schneider (hereinafter sometimes referred to as ‘Agnes‘), husband and wife, resided in Green Bay, Wisconsin. After the trial of this case, Al died and his estate was substituted as a petitioner. Al and Agnes were cash basis taxpayers; they filed their Federal individual income tax returns on a calendar year basis.

ORGANIZATION OF THE SCHNEIDER COMPANIES

Schneider Transport, Inc. (hereinafter sometimes referred to as ‘Transport ‘), formerly Schneider Transport and Storage, Inc., a Wisconsin corporation founded by Al in 1938, was engaged in interstate freight transport. During 1975 and 1976 Transport was part of a group of affiliated corporations that included Transport's parent corporation, American National Corporation (hereinafter sometimes referred to as ‘ANC‘) 2 and ANC's successor, AMNACO, Inc. (hereinafter sometimes referred to as ‘AMNACO‘), subsidiary corporations, and several other closely-held corporations which owned the real estate used by the affiliated corporations, rented trucks, distributed tractor and trailer parts, or engaged in other activities related to the business of common carriage by truck. 3 For the period 1971 through 1976, the affiliated corporations filed their tax returns for the calendar year, using the accrual method of accounting.

As of December 1, 1971, Transport had an initial authorized capital of 2,000 shares, $25 par value, Class A voting common stock and 6,000 shares, $25 par value, Class B nonvoting common stock; the 4,578 shares of the two classes of stock issued and outstanding were held as follows:

+----------------------------------------------------------+
                ¦                                          ¦Class A¦Class B¦
                +------------------------------------------+-------+-------¦
                ¦Al4                                       ¦1,007  ¦1,921  ¦
                +------------------------------------------+-------+-------¦
                ¦Agnes                                     ¦---    ¦30     ¦
                +------------------------------------------+-------+-------¦
                ¦Don                                       ¦520    ¦220    ¦
                +------------------------------------------+-------+-------¦
                ¦Paul C. Schneider                         ¦---    ¦220    ¦
                +------------------------------------------+-------+-------¦
                ¦James L. Schneider                        ¦---    ¦220    ¦
                +------------------------------------------+-------+-------¦
                ¦John Schneider                            ¦---    ¦220    ¦
                +------------------------------------------+-------+-------¦
                ¦Agnes, as custodian for Kathleen Schneider¦---    ¦220    ¦
                +------------------------------------------+-------+-------¦
                ¦                                          ¦1,527  ¦3,051  ¦
                +------------------------------------------+-------+-------¦
                ¦                                          ¦       ¦       ¦
                +----------------------------------------------------------+
                

During 1971, Al was the president, chairman of the board of directors, and principal shareholder of Transport; Agnes was a director and vice-president; and Don was a director and the secretary. Paul Gustafson, an individual unrelated to the Schneider family, was the treasurer of Transport.

In December 1971, Transport's authorized capital was changed to 100,000 shares, $.50 par value, Class A voting common stock and 300,000 shares, $.50 par value, Class B nonvoting common stock and the foregoing shareholders' stock was split on a 50-to-1 basis.

On March 2, 1973, ANC was formed to be the parent corporation of Transport and most of the affiliated corporations. On December 5, 1973, ANC adopted an amendment to its Articles of Incorporation which gave ANC an authorized capital of 500,000 shares, $.10 par value, Class A voting common stock and 1,500,000 shares, $.10 par value, Class B nonvoting common stock. In January 1974, the shareholders of Transport received five shares of the same class of ANC stock in exchange for each share of Transport stock held. Thereafter, ANC's 1,159,440 outstanding shares of common stock were held as shown in table 1 below.

+-----------------------------------------------------------------------+
                ¦TABLE 1                                                                ¦
                +-----------------------------------------------------------------------¦
                ¦                      ¦Number ¦Percentage¦Number ¦Percentage¦Percentage¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦                      ¦of A   ¦of A      ¦of B   ¦of B      ¦of total  ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦                      ¦shares ¦shares    ¦shares ¦shares    ¦shares    ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Al                    ¦251,750¦65.95     ¦283,355¦36.44     ¦46.15     ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Relatives:5           ¦       ¦          ¦       ¦          ¦          ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Agnes                 ¦---    ¦---       ¦7,500  ¦.97       ¦.65       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Don                   ¦130,000¦34.05     ¦94,985 ¦12.22     ¦19.40     ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Paul                  ¦---    ¦---       ¦89,300 ¦11.48     ¦7.70      ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦James L. Schneider    ¦---    ¦---       ¦87,105 ¦11.20     ¦7.51      ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦John Schneider        ¦---    ¦---       ¦87,105 ¦11.20     ¦7.51      ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Kathleen Schneider    ¦---    ¦---       ¦87,105 ¦11.20     ¦7.51      ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Brandt P. Schneider   ¦---    ¦---       ¦3,890  ¦.50       ¦.34       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Gwen L. Schneider     ¦---    ¦---       ¦3,890  ¦.50       ¦.34       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Jill M. Schneider     ¦       ¦          ¦       ¦          ¦          ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Elizabeth A. Schneider¦---    ¦---       ¦3,890  ¦.50       ¦.34       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Jennifer E. Schnedier ¦---    ¦---       ¦1,750  ¦.22       ¦.15       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Mary P. Schneider     ¦---    ¦---       ¦3,890  ¦.50       ¦.34       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Terry A. Schneider    ¦---    ¦---       ¦3,890  ¦.50       ¦.34       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Thomas J. Schneider   ¦---    ¦---       ¦3,890  ¦.50       ¦.34       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Kathleen M. Schneider ¦---    ¦---       ¦3,890  ¦.50       ¦.34       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Brenda Schneider      ¦---    ¦---       ¦1,750  ¦.22       ¦.15       ¦
                +----------------------+-------+----------+-------+----------+----------¦
                ¦Patricia Schneider    ¦---    ¦---       ¦1,750  ¦.22       ¦.15       ¦
...

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    • November 18, 1992
    ...concede that in fact there was no redemption of their GACC stock. As to the substance, in contrast to Estate of Schneider v. Commissioner, 88 T.C. 906, 939–941 (1987), affd. 855 F.2d 435 (7th Cir.1988), (1) it does not appear in the instant case that the stock that Green received was differ......
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    ...capital gain treatment. See, e.g., Estate of Schneider v. Commissioner [88-2 USTC ¶ 9484], 855 F.2d 435 (7th Cir. 1988), aff'g. [Dec. 43,851] 88 T.C. 906 (1987); Zenz v. Quinlivan [54-2 USTC ¶ 9445], 213 F.2d 914 (6th Cir. We agree with petitioners that the transfer to Uniroyal is a dividen......
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