West Texas Refining & D. Co. v. Commissioner of Int. Rev.
| Decision Date | 19 December 1933 |
| Docket Number | No. 815,816.,815 |
| Citation | 68 F.2d 77 |
| Parties | WEST TEXAS REFINING & DEVELOPMENT CO. v. COMMISSIONER OF INTERNAL REVENUE. COL-TEX REFINING CO. v. SAME. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Chas. H. Garnett, of Oklahoma City, Okl., for petitioners.
Norman D. Keller, Sp. Asst. to Atty. Gen. (Pat Malloy, Asst. Atty. Gen., and J. Louis Monarch, Sp. Asst. to Atty. Gen., on the brief), for respondent.
Before LEWIS, PHILLIPS, and BRATTON, Circuit Judges.
On June 2, 1925, the West Texas Refining & Development Company, a Delaware corporation, and its stockholders, the Hickok Producing Company and the Anderson-Prichard Oil Company, entered into a contract with the Standard Oil Company of California whereby they agreed to transfer to the Standard Company 50% of the capital stock of a corporation owning the refinery, pipe lines, and gathering lines then owned by the West Texas Company. The Standard Company agreed to pay $72,000 for such stock, and in addition thereto 50% of the cost of certain improvements to be made thereafter.
At a meeting of the stockholders of the West Texas Company held on September 3, 1925, a so-called plan of reorganization was adopted. This plan provided that the West Texas Company should transfer its refinery, pipe lines, gathering lines, and pumping stations to the Col-Tex Refining Company in consideration of 2,000 shares of its capital stock of the par value of $100 a share, and the payment of $72,000 in cash, and the further payment of one-half of the cost of such improvements; that the cash received together with any other assets should be applied to satisfy, as far as possible, West Texas Company's debts; and, subject to the payment by its stockholders ratably of its remaining debts, the Col-Tex Company stock to be received should be distributed as a dividend.
On September 3, 1925, the stockholders of the Col-Tex Company, a Delaware corporation, met and elected a board of directors. Thereupon such directors held a meeting, elected officers, and formally accepted the plan adopted by the West Texas Company. Following this another meeting of the directors of the Col-Tex Company was held at which it was reported that the Standard Company had offered to purchase 2,000 shares of its capital stock for the amount of cash the Col-Tex Company had that day obligated itself to pay to the West Texas Company. A resolution was passed accepting that offer. Five of the directors of the Col-Tex Company then resigned and new directors were elected. Of the new directors, two were stockholders and officers in the Hickok Company, and three were representatives of the Standard Company. By proper corporate action, deeds of conveyance, and bills of sale, the properties were transferred to the Col-Tex Company, and Col-Tex Company stock was issued to the West Texas Company and the Standard Company. Such stock was not delivered to the Standard Company until September 19, 1925. On that date the Standard Company paid the Col-Tex Company $184,771.34 in cash, which in turn paid it to the West Texas Company. This money together with advances made by the stockholders of the West Texas Company, was used to pay all its known debts and liabilities. The 2,000 shares of Col-Tex Company stock were then distributed as a dividend to stockholders of the West Texas Company.
The assets acquired from the West Texas Company were set up on the Col-Tex Company's books as follows:
Refinery land ................. $3,103.50
Refinery equipment ............ 172,407.56
Pipeline land ................. 342.50
Pipeline equipment ............ 139,116.24
Good-will ..................... 85,030.20
The evidence shows that the amount set up for good-will was a balancing figure rather than a good-will value. The other amounts are cost to the West Texas Company, less sustained depreciation.
In January, 1929, the commissioner assessed against the West Texas Company an additional tax of $7,574.44. In a deficiency letter dated February 11, 1929, the commissioner held that the above transaction amounted to a sale by the West Texas Company of its assets, and that, measured by the difference between the cost of $325,940.73 and the sale price of $384,771.34, a profit of $58,830.61 had been realized. The sale price was arrived at by taking the 2,000 shares of stock of the Col-Tex Company at $100 a share, and adding to that the amount of cash received. Liability was asserted against the Col-Tex Company as transferee. Both companies filed petitions with the Board of Tax Appeals. The cases were consolidated. The board held that the transaction amounted to a sale, and that the Col-Tex Company was liable for the tax resulting therefrom, as transferee of the assets of the West Texas Company.
Counsel for the petitioners contends that the transaction between the two companies falls within the exceptions enumerated in section 203 of the Revenue Act of 1926 (44 Stat. 12, 26 USCA § 934), and that therefore no gain should have been recognized as arising therefrom.
The material portions of section 203 read as follows:
It is argued that immediately after the transfer of the properties to the Col-Tex Company by the West Texas Company the latter owned all the outstanding stock of the Col-Tex Company, since the stock issued to the Standard Company was not delivered until sixteen days later, and therefore the transfer to the Col-Tex Company was a reorganization within the definition thereof in section 203 (h) (1). The assertion, while technically correct, overlooks other facts which disclose the real situation.
The West Texas Company and its stockholders entered into a contract with the Standard Company in June, 1925, for the sale of one-half of the stock of a corporation owning the physical assets of the West Texas Company. This contract contemplated the organization of the Col-Tex Company and the sale and issuance of its stock to the Standard Company and the West Texas Company in equal proportions. The contract further contemplated a sale by the West Texas Company of its physical assets for a substantial sum in cash. The Col-Tex Company upon coming into existence agreed to purchase those assets for 2,000 shares of its capital stock and a certain amount in cash. On the same day it also agreed to sell one-half of its capital stock to the Standard Company for the same amount of cash. The whole transaction was the means adopted to carry out the contract between the West Texas Company and the Standard Company. In substance it was but one single transaction. In Prairie Oil & Gas Co. v. Motter (C. C. A. 10) 66 F.(2d) 309, 311, this court said:
"If a taxpayer sought to avoid a tax on the profits of such a sale as this by asking the Commissioner to ignore the actualities, he would shortly and properly be reminded that taxation is an intensely practical matter and that the substance of the thing done, and not the form it took, must govern."
In Tulsa Tribune Co. v. Commissioner (C. C. A. 10) 58 F.(2d) 937, 940, this court said:
"As it seems to us, the attempt to break this transaction up into two elements by saying that Jones bought the property and then transferred it to the corporation in exchange for its capital stock is not only unfair, but untrue."
The purpose of section 203, supra, was to relieve corporations from profits taxes in c...
To continue reading
Request your trial
-
US v. MPM Contractors, Inc.
...of another corporation ordinarily does not assume the obligations of the transferror corporation. West Texas Refining & Dev. Co. v. Comm'r of Internal Revenue, 68 F.2d 77, 81 (10th Cir.1933); Mank v. S. Kansas Stage Lines Co., 143 Kan. 642, 645, 56 P.2d 71, 73 (1936). There are, however, fo......
-
Turner v. Bituminous Cas. Co.
...considerations, and nothing is said about the effect of products liability suits.1 See, e.g., West Texas Refining & Development Co. v. Commissioner of Internal Revenue, 68 F.2d 77 (CA 10, 1933); Pierce v. Riverside Mortgage Securities Co., 25 Cal.App.2d 248, 77 P.2d 226 (1938); Mank v. Sout......
-
National Gypsum Co. v. Continental Brands Corp., Civ. A. No. 93-12027-NG
...130 Mich. 300, 89 N.W. 960 (1902); Grenell v. Detroit Gas Co., 112 Mich. 70, 70 N.W. 413 (1897). Compare West Texas Refining & Development Co. v. C.I.R., 68 F.2d 77, 81 (10th Cir.1933) (no successor liability where selling corporation received valuable consideration for sale of its assets, ......
-
Maine Steel, Inc. v. United States
...U.S. 886, 72 S.Ct. 176, 96 L.Ed. 665; Hazeltine Corp. v. Commissioner, 3 Cir., 1937, 89 F.2d 513, 518; West Texas Refining & Development Co. v. Commissioner, 10 Cir., 1933, 68 F.2d 77, 80. So viewed, Fidelity retained no proprietary interest in plaintiff after the plan was carried through. ......
-
Buyer beware: you may be liable for the defective products of your predecessor.
...itself to potential liability on post-sale warning claims. (1) See, e.g., West Texas Refining & Dev. Co. v. Comm'r of Internal Revenue, 68 F.2d 77 (Cal. 1933); Pierce v. Riverside Mortgage Sec. Co., 77 P.2d. 226 (Cal. 1938); Mank v. S. Kansas State Lines Co., 56 P.2d. 71 (Kan. 1936); Sw......