Abegg v. Comm'r of Internal Revenue
| Decision Date | 24 April 1968 |
| Docket Number | Docket Nos. 1570-62— 1572-62. |
| Citation | 50 T.C. 145 |
| Parties | WERNER ABEGG, ET AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Emilio A. Dominianni and John E. McDermott, for the petitioners.
Eugene S. Linett, for the respondent.
Abegg, a nonresident alien in 1957, liquidated Hevaloid, a wholly owned Delaware corporation, which was a personal holding company, and exchanged the property and cash he then received for all the stock of Suvretta, a Panama corporation, also a personal holding company. The name Suvretta was changed to Cresta on or about Mar. 5, 1958. In February 1958 he contributed additional securities to the capital of Suvretta having fair market values some in excess of his basis and some below his basis. No ruling under sec. 367 was requested. In 1958, 1959, and 1960 Cresta unsuccessfully sought opportunities for investments in active businesses in the United States. Held:
1. Cresta was not engaged in trade or business in the United States during the taxable years ended in 1958, 1959, and 1960.
2. The liquidation of Hevaloid and transfer of its assets to Suvretta amounted to a reorganization under sec. 368(a)(1)(D), I.R.C. 1954.
3. Since no ruling under sec. 367 was sought, the gains realized by Hevaloid on liquidation and the transfer are recognized.
4. Cresta is liable as a transferee of assets for deficiencies determined against Hevaloid.
5. The transfer of assets to Suvretta in 1958 by its sole stockholder was a contribution to capital and not an exchange resulting in taxable gain to the transferor.
These consolidated cases involve deficiencies determined as follows:
Werner Abegg does not contest the deficiencies for 1959 or 1960 in docket No. 1570-62. Respondent concedes the addition to tax for 1959 for delinquent filing determined against Cresta Corp., S.A., in docket No. 1572-62. Other concessions were made by both parties which will be given effect under Rule 50.
The issues for decisions are (1) whether Cresta Corp., S.A., was engaged in trade or business in the United States in its fiscal years ended in 1958, 1959, and 1960; (2) whether the liquidation of Hevaloid and the activation of Suvretta amounted to a reorganization within the meaning of section 368(a)(1) of the 1954 Code; (3) whether the gains upon liquidation and transfer of assets are to be recognized; (4) whether Cresta is liable as a transferee for a deficiency determined against Hevaloid Corporation for 1957; and (5) whether a transfer of assets by Werner Abegg to Suvretta in 1958 resulted in taxable gain or recognizable loss to Abegg.
The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
Werner Abegg has been a citizen of Switzerland since prior to 1938. Except for 1940 through 1946, he has not been a resident of the United States. He is an industrialist. From 1946 until 1966 he was not engaged in business in the United States. In 1957 he was in the United States from January 1 to March 27 only. Throughout the year 1957 his U.S. assets exceeded his liabilities by at least $2 million. He filed a Federal income tax return for 1958 with the district director of internal revenue for Upper Manhattan, New York. The return, on Form 1040NB, reported income of $12,912.55 from dividends and tax liability of $3,873.78, withheld at source.
Suvretta Corp., S.A., was incorporated in 1941 under the laws of the Republic of Panama. Its name was changed to Cresta Corp., S.A., on or about March 5, 1958. Its authorized capital stock was 1,000 shares of no-par-value common stock. In the years in issue Werner Abegg was its sole stockholder. It filed Federal corporation income tax returns for fiscal years ending the last day of February in 1958, 1959, and 1960 with the district director of internal revenue for Upper Manhattan, New York. It was organized to acquire certain patents registered under the laws of various foreign nations, but as a consequence of the German occupation of Luxembourg this purpose was not carried out and it was inactive until 1957.
Hevaloid Corp. was organized under the laws of the State of Delaware in 1938. Its authorized capital was 2,000 shares of no-par-value common stock of which 250 shares were issued to Werner Abegg. No other stock was issued. It filed corporation income tax returns for the calendar years 1956 and 1957 with the district director of internal revenue for Upper Manhattan, New York.
Robert A. Cavin has been a close associate, friend, and business adviser to Werner Abegg since prior to 1938. During the year 1957 Robert A. Cavin was president of Hevaloid. During the years 1958, 1959, and 1960 Robert A. Cavin was president and treasurer of Cresta.
On June 27, 1938, Hevaloid purchased from Cela Holding, S.A., a corporation organized under the laws of Luxembourg, 12 patents and patent applications registered under the laws of the United States and 10 patents and patent applications registered under the laws of Canada. These patents related to the manufacture of belts and belting and various rubber products from various chemical processes. Hevaloid also purchased presses and other machinery to be used in the manufacture of such belts and belting and rubber products.
From 1938 until November 1944 Hevaloid leased its patents and machinery to L. H. Gilmer Co. of Philadelphia, Pa. From 1944 until April 1947 Hevaloid leased its patents and machinery to the U.S. Rubber Co.
In April of 1945 Hevaloid acquired from Cela Holding, S.A., certain other patents registered under the laws of various foreign nations.
From April 1947 until November 1955 Hevaloid leased its patents and machinery to Globe Woven Belting Co. of Buffalo, N.Y. In 1955 all of Hevaloid's patents expired and it sold all of its machinery to Globe Woven Belting Co. in November of that year. In 1956 and 1957 Hevaloid's assets consisted exclusively of cash, stocks and securities, receivables, and certain rights in the motion picture, ‘Guest In The House.’
During the period March 28, 1957, to December 11, 1957, Hevaloid was completely liquidated and dissolved in the following manner:
(a) A special meeting of the board of directors of Hevaloid was held on March 28, 1957, and a plan of complete liquidation and dissolution was duly adopted.
(b) On April 3, 1957, a consent to the dissolution of Hevaloid was duly executed by Werner Abegg and was filed with the State of Delaware.
(c) A certificate of dissolution was issued by the State of Delaware on April 18, 1957, and was recorded, and immediately thereafter Hevaloid withdrew from the various States in which it was authorized to do business.
(d) During April and May of 1957 Hevaloid, pursuant to its plan of liquidation, sold the following stocks. The sales of these stocks were effected by Laird & Co., stockbrokers:
These sales were included in Schedule D of Hevaloid's final Federal income tax return for the taxable year 1957 but were claimed as not recognized pursuant to the provisions of section 337 of the 1954 Code. The proceeds from the sales of such stocks were deposited to Hevaloid's account in the New York Trust Co., New York City, N.Y.
(e) On May 7, 1957, Hevaloid executed stock powers and distributed, pursuant to its plan of complete liquidation, the following stocks to Werner Abegg by delivery of the certificate and stock powers to Laird & Co. in New York, N.Y.:
(f) On May 23, 1957, pursuant to instructions received from Hevaloid issued under its plan of complete liquidation, Laird & Co., New York, N.Y., transferred the following stocks from the account of Hevaloid to the account of Werner Abegg:
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