APPEAL OF UNIFORM PRINTING & SUPPLY CO., Docket No. 5016.

• Decision Date: 23 November 1927
• Docket Number: Docket No. 5016.
• Parties: APPEAL OF UNIFORM PRINTING & SUPPLY CO.
• Court: U.S. Board of Tax Appeals

9 B.T.A. 251 (1927)

APPEAL OF UNIFORM PRINTING & SUPPLY CO.

Docket No. 5016.

Board of Tax Appeals.

Promulgated November 23, 1927.

Walter H. Eckert, Esq., for the petitioner.

M. N. Fisher, Esq., for the Commissioner.

The petitioner has appealed from the determination of a deficiency in income and profits taxes for the calendar year 1918 in the sum of $34,060.86. It claims that it is entitled to exemption under the provisions of section 231 of the Revenue Act of 1918.

FINDINGS OF FACT.

There are in the middle western portion of the United States two groups or associations of fire insurance companies. One of these associations is known as the "Union" and the other as the "Insurance Bureau." Some two hundred insurance companies belong to one or the other of these associations.

Prior to 1915 each company had its own blank forms printed and distributed them to its agents. In many instances the forms differed and in every instance each agent, although he represented numerous companies, was expected to, and commonly did, keep on hand a more or less complete supply of forms supplied by each company. The disadvantages of such an arrangement were obvious and in order to overcome them the representatives of the two associations devised the plan of having all of the member companies of the two associations use the same forms and of having one distributing agency which would supply the necessary forms to all agents.

It was deemed advisable to organize a corporation to handle the printing and distribution of forms, and in 1915 the Uniform Printing & Supply Co. was organized and all of its stock issued to the two associations, and they in turn distributed the stock to their members. (There is in the record no evidence of the residence of the corporation, the exact date of its organization, the number of shares issued and whether issued for cash, and no copy of the charter or by-laws from which the powers and purposes of organization may be ascertained.) The two associations advanced sufficient money to purchase the necessary machinery and equipment and the company borrowed additional money to be used as working capital for the purchase of material and supplies, payment of employees, etc.

As the membership in the two associations grew, it became necessary to reduce the stockholding of the members in the company in order to provide shares of stock for issuance to new members. In some instances a whole share of stock was not available for issuance or transfer to the new member and fractional parts of shares were issued or transferred. Under such circumstances, no consideration is paid for the issuance or transfer of the stock. Each shareholder, regardless of the size of its holdings, has the same voice in the management and control of the company.

The blank forms are supplied direct to the agents upon requisition from a member company. A bill or statement for the forms so distributed is rendered monthly to the Uniform Forms Committee, the membership of which is composed of representatives of the two associations. These bills are paid by the associations out of funds raised by assessments against the member companies based upon the business transacted, that is to say, premiums written, by each. In some instances the petitioner prints insurance policies for the companies and charge for such service is made and paid directly without the intervention of the associations.

It is the policy of the company to print and distribute forms and policies at a price which will be sufficient, but only sufficient, to pay the expenses of operating and maintaining the plant and organization. It was anticipated that in 1919 and subsequent years it would be necessary for the company to spend substantial sums in replacements of and additions to plant and equipment. In order to provide the necessary funds for such contemplated expenditures, the price charged for forms, etc., was increased slightly over the actual cost during the year 1918 with the result that the taxpayer closed the year with a surplus of $74,521.62. This amount was subsequently expended for replacements and additions.

The taxpayer corporation was organized to provide a printing and distributing service for its stockholders at cost and it has never...