RISS & CO., INC. v. Commissioner, Docket No. 74950-74954
| Decision Date | 14 July 1964 |
| Docket Number | 81486,78372,Docket No. 74950-74954,81487.,77065 |
| Citation | 1964 TC Memo 190,23 TCM (CCH) 1113 |
| Parties | Riss & Company, Inc. (A Delaware Corporation), Transferee, et al. v. Commissioner. |
| Court | U.S. Tax Court |
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Robert L. Jackson, for the petitioners. Sylvan Siegler, and Hugh McMahon, for the respondent.
Memorandum Findings of Fact and Opinion
These proceedings, consolidated for hearing and decision, involve deficiencies in income tax and additions to tax as follows:
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Deficiencies
Additions to the Tax Under
Sec. 293(a) Sec. 6653(a)
I. R. C. I. R. C
Docket No. and Taxpayer Year Income Tax 1939 1954
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74950—Riss & Co. ....................... 1952 $1,258,749.23 $26,858.35
1953 2,183,447.81 30,761.94
74951—Riss & Co. ....................... 1952 1,258,749.23 26,858.35
1953 2,183,447.81 30,761.94
74952—T. M. & E. ....................... 1949 139,184.54 ......... ........
1950 268,941.19 ......... ........
1951 343,411.53 ......... ........
1952 599,259.08 ......... ........
1953 645,773.63 $36,792.40 ........
74953—T. M. & E. ....................... 1949 139,184.54 ......... ........
1950 268,941.19 ......... ........
1951 343,411.53 ......... ........
1952 599,259.08 ......... ........
1953 645,773.63 $36,792.40 ........
74954—Riss, Sr. ........................ 1952 81,418.11 4,070.91 ........
1953 186,870.35 9,343.52 ........
1954 58,767.60 ......... $ 2,938.38
77065—Oklahoma-Colorado ................ 1952 25,200.11 ......... ........
1953 12,929.97 ......... ........
1954 6,225.45 ......... ........
78372—T. M. & E. ....................... 1956 308,364.64 ......... 15,418.23
81486—Riss, Sr. ........................ 1955 18,903.98 ......... 945.20
81487—Riss, Sr. ........................ 1956 44,865.76 ......... * * *
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By stipulation entered into by counsel at the beginning of the trial, the above shown additions to tax under sections 293(a) and 6653(a) of the 1939 and 1954 Codes, respectively (negligence penalties), were substituted for the additions to tax under subsection (b) of those Code sections (fraud penalties) asserted in the notices of deficiency, and the pleadings have been amended accordingly.
The deficiencies and additions to tax in Docket Nos. 74951 and 74953 are asserted against the petitioners as transferees of the petitioners in Docket Nos. 74950 and 74952 and the transferees concede that they are liable for any deficiencies or additions to tax found to be due from the transferors.
A number of the issues raised in the pleadings have been settled by stipulation, which will be given effect under Rule 50 settlement. Numerous facts have also been stipulated.2
A statement of the facts pertaining to each of the remaining issues3 in the several proceedings and the discussion pertaining thereto will be set out under separate headings below, following a statement of the general facts. To avoid any unnecessary prolongation of this opinion, restatement of the issues settled by stipulation, and the facts pertaining thereto, will be omitted. The issues not covered by the stipulation with respect to which the briefs submitted by the parties contain no proposed findings of fact and no argument will be deemed abandoned.
For convenience, petitioner, Riss & Company, Inc., Delaware, Docket No. 74950, and Riss & Company, Inc., Colorado, Docket No. 74951, will both be referred to, generally, as Riss & Company; petitioners Transport Manufacturing & Equipment Company of Delaware, Docket No. 74952, and Transport Manufacturing & Equipment Company, Illinois, Docket No. 74953, will be referred to as T. M. & E.; and petitioner Oklahoma-Colorado Freight Lines, Inc., Docket No. 77065, will be referred to as Oklahoma-Colorado.
The stipulated facts are so found.
Riss & Company, T. M. & E. and Oklahoma-Colorado are all Delaware corporations with offices located at Kansas City, Missouri. The returns of all three corporations were filed with the district director of internal revenue at Kansas City, Missouri. Richard R. Riss, Sr., one of the founders of Riss & Company, is the chief executive officer of all there corporations.
At all times here material Riss & Company was a common carrier engaged in motor freight transportation in interstate and intrastate commerce. T. M. & E. owned and leased to Riss & Company most of the transportation equipment and truck terminals used in its business.
During the years involved, Riss & Company operated in 22 states, principally in the eastern section of the United States. It had approximately 3,600 miles of operating rights under the approval of the Interstate Commerce Commission. It was incorporated under the laws of the State of Colorado in 1927 under the name of Riss & Quinn. Its name was changed to Riss & Company, Inc., in 1932. On June 27, 1956, it was reincorporated under the laws of the State of Delaware with the same capital structure, consisting of 20,000 class A common shares of a par value of $1 each; 8,000 class B common shares, par value $1 each; and 50,000 preferred shares, par value $10 each.
All of the outstanding class A common stock (which was the only voting stock) of Riss & Company was owned, over the 1949-1955 period, by Riss, Sr., and a majority of its class B stock was owned by his children and grandchildren. Some of the class B shares, 5,355, were owned by T. M. & E. at one time, but prior to February 1952 these shares were acquired by Richard S. Riss, II, and Robert B. Riss, hereinafter sometimes referred to as Richard and Robert, sons of Riss, Sr. Substantially all of the stock of T. M. & E. was owned, by Riss, Sr., and his children and grandchildren.
Riss, Sr., was chairman of the board of Riss & Company and of T. M. & E. Robert became president of Riss & Company, May 22, 1950. Richard became president of T. M. & E. in 1951. The two companies had their offices at the same location, and, for the most part, utilized the same office force and facilities. They both kept their books and made their income tax returns on the basis of an accrual method of accounting and for a calendar year.
From time to time T. M. & E. leased terminal facilities and equipment to others than Riss & Company and engaged in other business activities, to a limited extent. Its principal business has always been owning and leasing, to Riss & Company, tractors, trailers and terminal facilities. It has never itself engaged in the common carrier business. At all times here material, Riss, Sr., directed the affairs of both companies. Although Richard was the duly elected president of T. M. & E. during the years here involved, he was under the direction of Riss, Sr.
Oklahoma-Colorado was organized January 1, 1947. It also acquired and owned trailers and other equipment which it leased to Riss & Company. Its stock was owned by T. M. & E. until December 22, 1952, when it was purchased by Riss, Sr.'s three children. It also had the same address and occupied the same office as Riss & Company.
Business Expenses—Rentals—Paid to T. M. & E. by Riss & Company
During the years 1952, 1953 and 1954, Riss & Company operated a large number of tractors and trailers, most of which it leased from T. M. & E., and paid annual rentals thereon in excess of one-half million dollars. These rentals corresponded to the depreciation deductions on the equipment which T. M. & E. set up in its books and deducted in its returns. The rentals were designed to return to T. M. & E. the cost of the equipment plus financing charges and a nominal amount to cover bookkeeping costs. It was the intention of the parties that T. M. & E. should not realize any substantial profits on the rental of the equipment to Riss & Company. T. M. & E. was organized chiefly as a business convenience to Riss & Company and as a means of enabling Riss & Company to meet certain requirements of the Interstate Commerce Commission at a minimum cost and inconvenience. T. M. & E. performed no functions with respect to the leased equipment other than to sign the mortgages and notes, execute the lease agreements with Riss & Company, and pay over the...
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