Arthur R. Jones Syndicate v. Commissioner of I. Revenue
| Citation | 23 F.2d 833 |
| Decision Date | 01 December 1927 |
| Docket Number | No. 3910.,3910. |
| Parties | ARTHUR R. JONES SYNDICATE v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
David K. Tone, of Chicago, Ill., for petitioner.
Ottamar Hamele, of Washington, D. C., for respondent.
Before ALSCHULER, EVANS, and ANDERSON, Circuit Judges.
Respondent assessed a tax against petitioner upon an alleged income of $29,166.65. The taxpayer protested. It claimed a deduction of this sum as an interest charge. Whether it was paid to one Austin as an interest charge or as a dividend on preferred stock is the sole question presented on this appeal. The statement of facts will be directed to this single issue.
The Jones Syndicate was organized to promote a real estate venture involving the so-called Springer Building in Chicago. This property was under foreclosure and $600,000 was needed to redeem it from an immediate sale. Arthur Jones, the holder of a subsequent mortgage, proposed a syndicate, the stock to be divided into two classes, preferred and common. After selling preferred certificates sufficient to raise all but $250,000, Jones exhausted his certificate selling possibilities. He then sought a loan. Austin, a lender, offered to advance $250,000. He demanded a first lien and interest at the rate of 14 per cent. Other terms and demands need not be recited, for in its presented form this loan was never negotiated. His counsel advised Austin that the interest rate was usurious and Austin feared the Illinois statute might be pleaded against him in case he sought to enforce his contract.
In order to avoid any head-on conflict with the Illinois usury law (Smith-Hurd Rev. St. 1923, c. 74, § 4 et seq.) Jones revamped his stock set-up and provided for first preferred, second preferred, and common certificates. Our interest is centered in the 2,500 first preferred shares of $100 each, all of which were issued to Austin.
The articles of the syndicate provided that the first preferred shares were to be redeemed "on July 1, 1922, by payment of the par value thereof plus a dividend at the rate of 14 per cent. per annum from the date hereof to the date of such payment." In case of redemption, sale, or other disposition of the property, the proceeds thereof were to be applied in the order following:
(1) "To the payment of all debts and obligations of the syndicate.
(2) "To the payment of the outstanding first preferred shares of the syndicate at the rate of one hundred dollars ($100) per share plus a dividend thereon at the rate of 14 per cent. per annum from the date thereof."
It was further provided:
"If redemption of all of said preferred shares as hereinbefore provided shall not be made on July 1, 1922, there and thereafter all action by and on behalf of the syndicate members, including the matters covered by articles X, XV, and XVI hereof, shall be solely by the vote of the first preferred shares."
The syndicate paid Austin during the first year the following sums: $5,000 August 4, 1921; $6,666.66 September 6, 1921; $5,833.33 October 4, 1921; $5,833.33 November 8, 1921; $5,833.33 December 6, 1921; $5,833.35 January 11, 1922.
Fire destroyed the property before all the first preferred certificates had been retired. A dispute then arose between the parties over the right of Austin to recover interest beyond the date of payment and up to July 1, 1922. Upon Austin's insistence that 14 per cent. be paid beyond the date of payment, the syndicate defended upon the ground that the contract was usurious. Whereupon a compromise was effected.
All the witnesses who testified before the Board of Tax Appeals described the transaction as a loan and stated that the parties made use of the so-called first preferred stock as a mere expedient to circumvent the force and effect of the usury laws.
There are two primary questions the answers to which are decisive of this appeal: First, does the...
To continue reading
Request your trial
-
Fidelity-Bankers Trust Co. v. Helvering
...amount. Cases holding purported preferred stock dividends to be in reality "interest" are not in point. Cf. Arthur R. Jones Syndicate v. Commissioner, 7 Cir., 1927, 23 F.2d 833; Wiggin Terminals, Inc., v. United States, 1 Cir., 1929, 36 F.2d 893; Commissioner v. Proctor Shop, Inc., 9 Cir., ......
-
Foster v. Comm'r of Internal Revenue
...the parties concerned ( Wiggin Terminals, Inc. v. United States, 36 F.2d 893 (1st Cir. 1929); Arthur R. Jones Syndicate v. Commissioner, 23 F.2d 833 (7th Cir. 1927), revg. 5 B.T.A. 853 (1926)).104 In the present case, we think the Westway notes represent such a negotiated bonus or premium, ......
-
Woodward v. United States
...Journal Co. v. Commissioner, 7 Cir., 1942, 125 F.2d 349 (indebtedness contingent on court approval of a sale); Arthur R. Jones Syndicate v. Commissioner, 7 Cir., 1927, 23 F.2d 833 (usurious interest held deductible). See also Pierce Estates, Inc., v. Commissioner, 3 Cir., 1952, 195 F.2d 475......
-
United States v. Diehl, Civ. A. No. 73-H-1017.
...or even usurious, citing Wiggin Terminals, Inc. v. U. S., 36 F.2d 893 (1st Cir. 1929); and Arthur R. Jones Syndicate v. Commissioner of Internal Revenue, 23 F.2d 833 (7th Cir. 1927). She submits that she should now be permitted to deduct the amount by which the fair market value of the shar......