RL Blaffer & Co. v. Commissioner of Internal Rev.
| Decision Date | 25 May 1939 |
| Docket Number | No. 8975.,8975. |
| Citation | 103 F.2d 487 |
| Parties | R. L. BLAFFER & CO. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Walter E. Barton, of Washington, D. C., for petitioner.
A. F. Prescott, Sewall Key, and Berryman Green, Sp. Assts. to the Atty. Gen., Jas. W. Morris, Asst. Atty. Gen., and J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, and Claude R. Marshall, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.
Before FOSTER, SIBLEY, and McCORD, Circuit Judges.
The Board of Tax Appeals determined income tax deficiencies of R. L. Blaffer & Company for the fiscal years ending September 30, 1932, 1933, and 1934. The Board determined the deficiencies by computing the corporation's income, and applying the rate of tax prescribed by Section 104(a) of the Revenue Act of 1932, 47 Stat. 195, 26 U.S.C.A. § 104 note. The appeal from the decision of the Board is brought to this court by petition for review.
The pertinent facts as disclosed by the record and found by the Board are these:
The petitioner, R. L. Blaffer & Company, is a Texas corporation and was organized in 1929. R. L. Blaffer organized the corporation on the recommendation of his attorney and a tax consultant. The organization was suggested as a means of facilitating stock trading, decreasing prospective inheritance taxes, and facilitating the administration of the Blaffer estate. The corporation's capital was represented by 2,500 shares of stock having a par value of $100 per share. Of these shares, 1,275 were issued to Blaffer, 1,222 to his wife, and one qualifying share to each of three other persons. R. L. Blaffer was the president and sole directing head of the company.
R. L. Blaffer & Company kept its books and filed its income tax returns on the basis of a fiscal year ending on September 30. The books of the corporation for the fiscal years 1930 to 1934, inclusive, indicated net income and earned surplus but a dividend was never declared or paid. Mr. and Mrs. Blaffer, its shareholders, did not include in their reported gross income their distributive shares of the corporation's net income for any year.
The assets of the taxpayer corporation consisted almost entirely of stocks and bonds, and shortly after its organization sharp stock market declines greatly reduced the market value of its assets. The brokerage accounts of the company were personally guaranteed by Blaffer. In 1929 Blaffer and his wife transferred to the petitioner as paid in surplus certain shares of stock having a value of $637,461 and which had cost Blaffer $486,686.65. In 1933 a further contribution of stocks valued at $447,500 was made to paid in surplus.
In October, 1929, Blaffer and his wife sold securities through a broker for $627,542.03 and on the same day had his corporation purchase through brokers an equal amount of the same kind of securities. In November, 1929, he and his wife sold stocks and bonds to their corporation for $260,807.01. On account of these transactions Blaffer and his wife claimed a loss deduction of $417,752.11 in their income tax returns for 1929. In 1932 and 1933 they made further sales to R. L. Blaffer & Company and claimed loss deductions in their personal income tax returns for those years. These deductions were allowed and they thereby escaped the payment of tax on these amounts.
The Board found that R. L. Blaffer & Company was a mere holding or investment company and rejected the contention that an alleged insolvency, resulting from declines in the market value of stocks, made the taxing statute inapplicable.
Section 104(a) of the Revenue Act of 1932 imposes an additional tax of 50 per cent. on the net income of...
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