APPEAL OF BRADLEY, Docket No. 47.

• Decision Date: 29 November 1924
• Docket Number: Docket No. 47.
• Citation: 1 BTA 111
• Parties: Appeal of W. C. BRADLEY.
• Court: U.S. Board of Tax Appeals

1 B.T.A. 111 (1924)

Appeal of W. C. BRADLEY.

Docket No. 47.

Board of Tax Appeals.

Submitted October 29, 1924.

Decided November 29, 1924.

H. H. Swift, Esq., and John E. McClure, Esq., for the taxpayer.

John D. Foley, Esq. (Nelson T. Hartson, Solicitor of Internal Revenue) for the Commissioner.

Before JAMES, STERNHAGEN, TRAMMELL, and TRUSSELL.

This appeal, involving additional personal income tax for the year 1919, was heard upon a stipulation of facts. The case relates to the sale of the stock of the Coca-Cola Co. of Georgia, the reorganization of that business as the Coca-Cola Co. of Delaware, and certain profits alleged to have grown out of this transaction.

FINDINGS OF FACT.

The taxpayer, W. C. Bradley, was during the year 1919 a stockholder of the Trust Co. of Georgia, a banking corporation having its principal office and place of business in the city of Atlanta. He owned 50 shares of stock of the said corporation of a total of 10,000 shares issued and outstanding.

During the month of July, 1919, Ernest Woodruff, president of the Trust Co. of Georgia, hereinafter called the Trust Co., engaged Robert C. Alston to negotiate an option with each of the stockholders of the Coca-Cola Co. of Georgia, hereinafter called the Georgia Co., for the purchase of their stock in that company. At the same time Mr. Woodruff arranged with certain interests in New York for the formation of a syndicate, hereinafter called the Bankers' Syndicate, to cause to be incorporated under the laws of Delaware a corporation to be known as the Coca-Cola Co. of Delaware, hereinafter called the Delaware Co., to underwrite the purchase price of the stock of the Georgia Co.; to cause the property and assets of the latter company to be transferred to the former and to cause to be issued by the Delaware Co. $10,000,000 of preferred stock and 500,000 shares of no par value common stock, from the proceeds of the sale of which should be realized the sums necessary for the purchase of the stock of the Georgia Co. Mr. Woodruff agreed, on behalf of the Trust Co., that that company should have a 30 per cent interest in this syndicate and assume 30 per cent of the "responsibilities incurred in connection with the exercise of the said option."

On August 2, 1919, the board of directors of the Trust Co. adopted a resolution, the material portion of which is as follows:

Be it resolved, That this company do enter into the purchase of said participation certificates or of the assets of the Coca-Cola Co. through a syndicate or syndicates, provided the unanimous opinion of attorneys representing this company, the Guaranty Trust Co., the Chase Securities Co., and the Coca-Cola Co. is favorable; and further provided that one-half of the amount for which this company will be called upon to obligate itself in this behalf be underwritten by solvent persons, firms or corporations.

On or before August 8, 1919, Mr. Alston secured from all the stockholders of the Georgia Co. options to purchase their respective interests in that corporation. These options carried no obligation unless exercised, but if exercised required payments in the aggregate to the stockholders of the Georgia Co. of $10,000,000 preferred stock of the Delaware Co. and of $15,000,000 in cash. The options expired on August 29, 1919, and if exercised required payment of the purchase price 30 days after the acceptance of the option. On August 8, 1919, Mr. Alston assigned the said options to the Trust Co. On August 13, 1919, the directors of the Trust Co. adopted a resolution in authorizing the company to enter into the Bankers' Syndicate to purchase the stock of the Georgia Co. to the extent of $4,500,000 and providing further as follows:

Be it therefore resolved, That the executive committee is authorized to propose to each of the stockholders of this company, that if he will deposit with this company, in cash, one hundred and ninety-five ($195) dollars for each share of stock owned by him in this company, to be used in assisting this company in financing said transaction, this company will divide with him the stock of the Coca-Cola Co., the Delaware corporation, retained by it under the original Bankers' Syndicate in proportion to his holdings, not to exceed one share of stock in the Coca-Cola Co. for each share of stock held by the stockholder in this company on the same basis at which this company acquired said stock, returning to said stockholders, upon the termination of said syndicate, the amount of money deposited by him, less the cost of the stock on the basis that this company acquired same.

Be it further resolved, That upon the assumption by him of a proportionate part of the liability of this company in committing itself to to a participation in the syndicate hereinbefore referred to, an interest in said syndicate to the extent of twenty thousand (20,000) shares of the stock of the Coca-Cola Co., the Delaware corporation, be transferred to Ernest Woodruff, in consideration of the time and services given by him in connection with this transaction.

On August 21, 1919, the Trust Co., the Newmont Co. of New York, the Shermar Investing Corporation and Charles H. Sabin, comprising the Bankers' Syndicate, formally executed a syndicate agreement whereby the parties obligated themselves to carry out the plan theretofore contemplated; to share the expenses, obligations, and profits in proportions therein named, the proportion of the Trust Co. being 30 per cent; to cause the Delaware Co. to be incorporated; to issue its stock as above set forth and to cause that company to sell to the syndicate 83,000 shares of its common stock at $5 per share and 417,000 shares to a separate syndicate, hereinafter called the Common Stock Syndicate, at $35 per share. On the same date the options theretofore secured to purchase the stock of the Georgia Co. were exercised, and the Common Stock Syndicate was organized by the Trust Co. to purchase 417,000 shares of the Delaware Co., with the Trust Co. acting as syndicate manager.

On August 22, 1919, the Trust Co. transmitted to the taxpayer and to all other stockholders of the company a letter reading, except as to name and amounts, as follows:

Mr. WILLIAM C. BRADLEY Columbus, Ga., DEAR SIR:

STRICTLY CONFIDENTIAL.

As you are probably aware, we, associated with strong New York interests, will share in the profits to be derived from the acquirement of the Coca-Cola Co. assets and business. This is a large transaction, involving a large sum of money, and we have made a large commitment in connection with the financing of the enterprise.

We made this commitment expecting to offer to our stockholders the privilege of participating in the profits of the enterprise on the same basis that the Trust Co. will share in such profits, provided such stockholders will contribute to the financing of the enterprise in proportion to the number of shares which they hold in the Trust Co.

It is impossible, at this time, to explain to you the details of the transaction, since they have not yet been definitely agreed upon and are subject to change, but it will be necessary to make the financial arrangements immediately and before the details can be worked out.

You hold 50 shares of stock in the Trust Co., and, to enable you to participate in this transaction the amount of money it is necessary for you to place with us is $9,750. On the dissolution of the Syndicate, which we anticipate will not be later than October 1, you will be advised regarding its operation and a distribution promptly made.

We think it is to your interest to take advantage of this offer, and we recommend it to you. If we do not receive your check, however, for the amount above stated on or before 12 o'clock noon the 27th day of August, 1919, we will assume that you do not desire to participate.

The rights you acquire hereunder, if accepted, are not transferable before the dissolution of the syndicate.

Please sign the acceptance below, on the inclosed duplicate, and return with your check.

Yours very truly GEO. B. PENDLETON, Treasurer.

On August 23, 1919, the taxpayer by one J. D. Massey accepted the foregoing and forwarded his check for $9,750, being $195 per share on each of his 50 shares in the company, forwarding at the same time a letter reading as follows:

EAGLE & PHENIX MILLS Columbus, Ga., August 23, 1919. TRUST CO. OF GEORGIA Atlanta, Ga.

GENTLEMEN: Your circular letter of August 22, to Mr. W. C. Bradley, concerning the underwriting syndicate for handling the purchase of the Coca-Cola Co., has been received in the absence of Mr. Bradley on a business trip to New York.

Before leaving, Mr. Bradley went into this matter fully with me, and, anticipating that a call for funds might be made prior to his return, he instructed and fully empowered me to handle the matter for him in his absence.

You will accordingly find inclosed, as requested, the carbon copy of the above-mentioned letter from you, dated August 22, 1919, to which, by authority, I have signed Mr. Bradley's name, accepting for Mr. Bradley the offer of participation made in said letter.

Also further acting for Mr. Bradley, I attach hereto check of the W. C. Bradley Co., No. 1739, dated August 23, 1919, drawn upon the National City Bank, of New York, in favor of the Trust Co. of Georgia, for $9,750, same being the amount specified in the above-mentioned letter of August 22.

I know that it is Mr. Bradley's desire and intention to participate in this matter fully in all respects, and if there is anything else necessary to be done by him or for his account to that end, kindly communicate promptly by telegraph, telephone, or letter.

Yours, very truly J. D. MASSEY.

Immediately after August 21, and prior to August 26, 1919, the Trust Co., as syndicate manager of the Common Stock Syndicate, offered 417,000 shares of the Delaware Co. to the public on an "if, as, and when issued" basis at $40 per share, and on August 26, 1919,...