ARC Realty Co. v. Comm'r of Internal Revenue
| Decision Date | 15 June 1960 |
| Docket Number | 70296-70298.,Docket Nos. 64689-64691 |
| Citation | 34 T.C. 484 |
| Parties | ARC REALTY COMPANY, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Gustavus A. Buder, Jr., Esq., for the petitioners.
William A. Goffe, Esq., for the respondent.
On June 24, 1932, petitioners, personal holding companies during the taxable years in issue, exchanged the gold notes which they held of the American Press for interim certificates representing 1,417 1/2 shares of Star 4 per cent second preferred stock. Said interim certificates were subject to certain restrictions. Between 1932 and 1934 additional interim certificates for 1,104 shares of Star were contributed to the capital of petitioner Lydiade. On July 12, 1934, petitioners received 2,521 1/2 shares of Star 4 per cent second preferred stock in exchange for their interim certificates. During 1935 and 1936 petitioner Lydiade purchased 19 shares of Star 4 per cent second preferred stock for a total consideration of $680. During 1951 petitioners sold their aggregate of 2,540 1/2 shares of Star 4 per cent second preferred stock for $100 per share.
1. Held, bases for the foregoing shares of 4 per cent second preferred stock determined.
2. Held, further, Christmas gifts given by petitioners Arc and Lydiade are not deductible as business expenses. Sec. 23(a)(1), I.R.C. 1939.
3. Held, further, accountant fees which petitioners paid to a public accounting firm for services rendered are deductible as business expenses. Sec. 162(a)(1), I.R.C. 1954.
4. Held, further, for purposes of computing subchapter A net income Federal income taxes accrued and deducted in prior years are not again deductible in a subsequent year when paid. Sec. 505(a)(1), I.R.C. 1939.
5. Held, further, respondent's disallowance of certain alleged unused dividend credit carryovers, section 504, I.R.C. 1939, sustained.
6. Held, further, respondent's computation of the alternative tax under section 117(c), I.R.C. 1939, approved.
7. Held, further, this Court lacks jurisdiction to determine an overpayment claimed by petitioner Lydiade for the year 1953. Sec. 272(g),I.R.C. 1939.
These consolidated proceedings involve deficiencies in income tax and personal holding company surtax as follows:
+-------------------------------------------------------------------+
¦ ¦ ¦ ¦Deficiencies ¦
+------+------------------------+------+----------------------------¦
¦Docket¦Petitioner ¦Year ¦ ¦ ¦
+------+------------------------+------+------------+---------------¦
¦No. ¦ ¦ ¦ ¦ ¦
+------+------------------------+------+------------+---------------¦
¦ ¦ ¦ ¦ ¦Personal ¦
+------+------------------------+------+------------+---------------¦
¦ ¦ ¦ ¦Income tax ¦holding company¦
+------+------------------------+------+------------+---------------¦
¦ ¦ ¦ ¦ ¦surtax ¦
+------+------------------------+------+------------+---------------¦
¦ ¦ ¦( 1951¦$12,686.25 ¦$3,673.68 ¦
+------+------------------------+------+------------+---------------¦
¦64689 ¦Arc Realty Co ¦( 1952¦112.51 ¦2,687.71 ¦
+------+------------------------+------+------------+---------------¦
¦ ¦ ¦( 1953¦ ¦5,786.04 ¦
+------+------------------------+------+------------+---------------¦
¦70296 ¦Arc Realty Co ¦( 1954¦1 175.89 ¦ ¦
+------+------------------------+------+------------+---------------¦
¦ ¦ ¦( 1951¦8,798.24 ¦2,021.15 ¦
+------+------------------------+------+------------+---------------¦
¦64690 ¦Arcadia Realty Co ¦( 1952¦88.86 ¦2,279.60 ¦
+------+------------------------+------+------------+---------------¦
¦ ¦ ¦( 1953¦ ¦6,175.18 ¦
+------+------------------------+------+------------+---------------¦
¦70297 ¦Arcadia Realty Co ¦( 1954¦1 1,436.74¦ ¦
+------+------------------------+------+------------+---------------¦
¦ ¦ ¦( 1951¦29,406.58 ¦3,295.12 ¦
+------+------------------------+------+------------+---------------¦
¦64691 ¦Lydiade Investment Trust¦( 1952¦30.68 ¦805.49 ¦
+------+------------------------+------+------------+---------------¦
¦70298 ¦Lydiade Investment Trust¦1954 ¦1 8,147.23¦ ¦
+-------------------------------------------------------------------+
1 Including personal holding company tax.
Petitioners claim overpayments of income tax as follows:
+----------------------------------------------------+
¦Docket¦Petitioner ¦Year ¦Overpayment ¦
+------+------------------------+------+-------------¦
¦No. ¦ ¦ ¦ ¦
+------+------------------------+------+-------------¦
¦ ¦ ¦( 1951¦$34.01 ¦
+------+------------------------+------+-------------¦
¦64690 ¦Arcadia Realty Co ¦( 1952¦6,258.87 ¦
+------+------------------------+------+-------------¦
¦ ¦ ¦( 1951¦22.62 ¦
+------+------------------------+------+-------------¦
¦64691 ¦Lydiade Investment Trust¦( 1952¦27.48 ¦
+------+------------------------+------+-------------¦
¦ ¦ ¦( 1953¦7,925.33 ¦
+------+------------------------+------+-------------¦
¦70296 ¦Arc Realty Co ¦( 1954¦1 7,084.88 ¦
+------+------------------------+------+-------------¦
¦70297 ¦Arcadia Realty Co ¦1953 ¦34.62 ¦
+------+------------------------+------+-------------¦
¦70298 ¦Lydiade Investment Trust¦1954 ¦1 13,565.77¦
+----------------------------------------------------+
In addition, petitioner in Docket No. 70298 claims an overpayment in income tax of $3,320.63 for the taxable year 1953, a year in which the respondent did not determine a deficiency.
Both parties have made certain concessions on brief and in the stipulation of facts. The issues remaining for decision are as follows:
1. What is the basis of Star-Times Publishing Company 4 per cent second preferred stock for computation of gain or loss on sale of said stock in 1951 by petitioners Arc Realty Company (Arc), Arcadia Realty Company (Arcadia), and Lydiade Investment Trust (Lydiade)?
2. Are certain expenditures by Arc and Lydiade in 1951 and 1952 as Christmas gifts to Otto Eisenstein deductible as ordinary and necessary business expenses under section 23(a)(1)(A), I.R.C. 1939?
3. Are expenditures by Arc, Arcadia, and Lydiade in 1954 to Peat, Marwick, Mitchell & Company for accountant fees deductible as ordinary and necessary business expenses under section 162(a)(1), I.R.C. 1954?
4. Are Arc, Arcadia, and Lydiade entitled to deduct from net income in the computation of their subchapter A net income for 1951, 1952, and 1953 Federal income taxes paid during said years though accrued and deducted in prior years?
5. Are petitioners Arc, Arcadia, and Lydiade entitled to unused dividend paid credit carryovers from prior years in the computation of their personal holding company surtax liability and of the personal holding company tax portion of their income tax liabilities for the years 1951 through 1954?
6. May petitioner Arc in Docket No. 70296 deduct the amount of $5,869.50 in computing its personal holding company tax under the alternative method?
7. Is Lydiade entitled to an overpayment in income tax for the year 1953?
The stipulated facts are so found and are incorporated herein by this reference.
Petitioners Arc Realty Company, Arcadia Realty Company, and Lydiade Investment Trust, hereinafter referred to as Arc, Arcadia, and Lydiade, respectively, are corporations organized under the laws of Missouri on October 16, 1898, June 16, 1895, and March 15, 1930, respectively, with offices at St. Louis, Missouri.
Petitioners filed their Federal income tax returns and personal holding company surtax returns for the years 1951, 1952, and 1953 at St. Louis, Missouri, with the respective offices of the collector of internal revenue for the first district of Missouri, the director of internal revenue, and the district director of internal revenue. Their income tax returns, including computations for personal holding company tax, for the year 1954 were filed with the district director of internal revenue at St. Louis, Missouri. All returns were filed on a cash basis.
Arc, Arcadia, and Lydiade were personal holding companies during each of the years 1951 to 1954, inclusive.
Basis of stock.— In 1932 the American Press owned a daily newspaper known as The St. Louis Times. On March 1, 1932, the American Press executed a series of 5 per cent gold notes aggregating $1,250,000, which were secured by a first mortgage deed of trust on its physical assets. On June 21, 1932, petitioners held certain of said secured notes with total face values as follows: Arc, $180,000; Arcadia, $125,000; and Lydiade, $100,000. On the last-mentioned date the American Press entered into a purchase and sale agreement with the Star-Chronicle Publishing Company, predecessor of Star-Times Publishing Company (both hereinafter referred to as Star), under which the American Press contracted to sell to Star all the assets of The St.Louis Times (except cash, accrued accounts receivable, notes, securities, collaterals, and choses in action) for 5,000 shares of Star 4 per cent second preferred stock to be issued and delivered on or before July 1, 1934. The pertinent provisions of the agreement (sections 5, 14, and 15 of article Fifth) are as follows:
5. That Seller shall furnish to Buyer, within thirty (30) days, satisfactory evidence that its stockholders have ratified...
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