Boggs & Buhl v. Commissioner of Internal Revenue
| Decision Date | 23 September 1929 |
| Docket Number | No. 4017.,4017. |
| Citation | 34 F.2d 859 |
| Parties | BOGGS & BUHL, Incorporated, v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Third Circuit |
Maynard Teall, W. A. Seifert, B. J. Jarrett, Karl W. Warmcastle, Smith, Shaw, McClay & Seifert, and McCook & Seifert, all of Pittsburgh, Pa., for petitioner.
Mabel Walker Willebrandt, Asst. Atty. Gen., and Sewall Key and Andrew D. Sharpe, Sp. Asst. Attys. Gen. (C. M. Charest, Gen. Counsel, and Shelby S. Faulkner, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
The question at issue in this case is the value of the good will of the petitioner at the time of its organization and purchase of its stock. It contends that the value was at least $1,000,000. The Commissioner says that it did not exceed $600,000. The United States Board of Tax Appeals held with the Commissioner, and the petitioner brought the case here for review.
The petitioner is a Delaware corporation, with its principal office and place of business at Pittsburgh, Pa. In 1869 Russell H. Boggs and Henry Buhl, Jr., established a partnership in the dry goods business in that city under the firm name of Boggs & Buhl. In 1899 this partnership was changed to a New Jersey corporation, under the name of Boggs & Buhl, Inc. It was prosperous, catered to a very high class of trade, and had a good reputation.
In 1912 the May Department Stores Company acquired control of the Boggs & Buhl Company, and for the next three years sought a popular trade with cheaper prices. This departure from the business policy which had been pursued for years did not succeed, and in the fall of 1915, Messrs. Boggs and Buhl repurchased the stock from the May Department Stores Company, and on November 30, 1915, resumed active management of the business and as soon as possible disposed of the accumulation of goods called "seconds," "thirds," "left-overs," and other undesirable merchandise, which had accumulated during the May management, and returned to the policy of catering a high-class trade.
On May 8, 1916, Boggs & Buhl was incorporated under the laws of Delaware, with an authorized capital stock of $3,900,000, divided into 39,000 shares, consisting of 26,000 shares of 7 per cent. cumulative preferred stock and 13,000 shares of common stock. The par value of each class of stock was $100. Common stock of the value of $3,500 was issued at par for cash paid in. The Delaware company purchased all the assets of the New Jersey company of every kind for $3,900,000 and paid for them as follows: $2,600,000 in its 7 per cent. capital cumulative preferred stock, $1,296,500 in common stock of the company, and $3,500 in cash.
The transfer of the assets of the New Jersey corporation to the Delaware corporation was made on August 1, 1916. At this date no good will was carried on the books of the New Jersey corporation. Nor had any been carried on the books since 1905, when it wrote off $1,000,000 for good will. Upon taking over the assets of the New Jersey corporation, the Delaware corporation issued stock for $3,900,000. Of this amount $1,296,500 of common stock was issued for good will, and the value of the good will of the company is the question here.
Under section 326(a) (4) of the Revenue Acts of 1918 and 1921 (40 Stat. 1092; 42 Stat. 274), the petitioner was authorized to include in invested capital good will to an amount not exceeding the value thereof, or 25 per cent. of the par value of the stock outstanding March 3, 1917. The par value of the stock of the Delaware company outstanding on this date was $3,900,000. Twenty-five per cent. of this amount is $975,000. The petitioner says that the value of the good will is more than $975,000, but it cannot include more in the invested capital, because of the inhibition of the statute, and in any event it should be allowed that much. The tax board, on the other hand, says that the good will of the company at the time it was acquired in 1916 had an actual cash value of at least $600,000, and the petitioner was entitled to include that amount in its invested capital for the years in question, of 1920, 1921, and 1922.
If the value of the good will was $1,000,000 at the time it was acquired, $975,000, or one-fourth of the par value of the stock outstanding on March 3, 1917, is the maximum amount that may be included...
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