Tazewell Electric Light & Power Co. v. Strother

• Decision Date: 08 June 1936
• Docket Number: No. 4011.,4011.
• Citation: 84 F.2d 327
• Parties: TAZEWELL ELECTRIC LIGHT & POWER CO. v. STROTHER, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Fourth Circuit

84 F.2d 327 (1936)

TAZEWELL ELECTRIC LIGHT & POWER CO. v. STROTHER, Collector of Internal Revenue.

No. 4011.

Circuit Court of Appeals, Fourth Circuit.

June 8, 1936.

Charles P. Gillespie and E. L. Greever, both of Tazewell, Va., for appellant.

Morgan V. Martin, Sp. Asst. to Atty. Gen. (Robert H. Jackson, Asst. Atty. Gen., Sewall Key and Norman D. Keller, Sp. Assts. to Atty. Gen., and Sterling Hutcheson, U. S. Atty., and John V. Cogbill, Asst. U. S. Atty., both of Richmond, Va., on the brief), for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

NORTHCOTT, Circuit Judge.

This is an action at law instituted in the District Court of the United States for the Eastern District of Virginia, in November, 1932, by the appellant, herein referred to as the plaintiff, against the appellee, herein referred to as the defendant, to recover the sum of $7,781.62, with interest, taxes assessed against the plaintiff as corporate income and profit taxes and paid under protest.

Answer was duly filed by the defendant, individually and as Collector of Internal Revenue for the collection district of Virginia, and a stipulation was entered into waiving trial by jury. After a hearing in which evidence was taken, the judge below filed an opinion holding that the tax was properly assessed and that the plaintiff was not entitled to recover. In October, 1935, in accordance with this opinion, an order was entered dismissing the action at the cost of the plaintiff. From this judgment this appeal was brought.

Tazewell Electric Light & Power Company, the plaintiff, was a corporation doing business in the town of Tazewell, Virginia, and all of its stock (150 shares) was held by Tazewell Street Railway Company. In November, 1929, the Street Railway Company declared a dividend of said stock of the plaintiff company held by it, and distributed the same among its stockholders in accordance with their stock holdings.

After the stock had been distributed, but on the same day, the new holders of 123.4888 of the 150 shares of stock by resolution directed that all the property of the plaintiff be conveyed to one W. T. Gillespie, trustee, and on the same day, by another resolution, the said stockholders declared the corporation dissolved.

The properties were conveyed to said Gillespie by deed of the plaintiff corporation dated November 20, 1929. On November 30, 1929, Gillespie, trustee, conveyed to the Appalachian Electric Power Company certain of the properties and was paid in consideration therefor the sum of $89,000.

On December 24, 1929, Gillespie, trustee, conveyed to Tazewell Fuel & Ice Corporation certain other properties and was paid in consideration therefor $5,162.50. The said Gillespie, trustee, proceeded to pay the debts, collect the accounts due, and otherwise generally liquidate the plaintiff corporation and distributed the balance of cash in his hands to said stockholders in accordance with their holdings. At the time of the hearing below, Gillespie was still engaged in winding up the affairs of the plaintiff, not having fully completed its liquidation.

The sole question presented is whether the profit realized on the sale of the corporate assets of the plaintiff was taxable income of the corporation.

The pertinent statutes involved will be found in sections 101 and 115 of the Revenue Act of 1928 (26 U.S.C.A. §§ 101 note, 115 and note). The pertinent Treasury Regulations promulgated under the Revenue Act of 1928, are articles 71 and 392, Regulation 74.

A similar question to the one here presented was before this court in Burnet v. Lexington Ice & Coal Company, 62 F.(2d) 906, 909, where we approved of the holding of the Circuit Court of Appeals for the Fifth Circuit in Taylor Oil & Gas Company et al. v. Commissioner of Internal Revenue, 47 F.(2d) 108, to the effect that the real owner of the property sold was the company "until such time as its affairs were liquidated, the debts paid, and the residue distributed to the stockholders. The profit on the transaction was earned by the corporation."

Here the resolution that was passed at a stockholders' meeting, at which all of the stockholders were not represented, and to which resolution, as far as the record discloses, some of the stockholders never did assent (unless a failure to protest should be tacit consent), provides that all the property of the corporation should be conveyed to Gillespie as trustee. The deed made by the corporation itself, pursuant to this resolution, conveying the property to the trustee, provided as follows:

"(1) Said Trustee shall sell, grant, convey, assign, transfer and deliver, by such deeds, contracts and agreements as may be necessary, for cash, all of the real and tangible personal properties herein granted and conveyed to him, to such purchaser or purchasers and at such price or prices as he may determine, and convert all notes, bonds and accounts receivable of the Company into cash by collection or sale, at such price or prices as he may...