Bankers Trust Company v. Commissioner of Internal Revenue, Docket No. 32459.
| Decision Date | 11 September 1931 |
| Docket Number | Docket No. 32459. |
| Parties | BANKERS TRUST COMPANY, AS TRUSTEE UNDER TRUST INDENTURE DATED DECEMBER 23, 1922, BY AND BETWEEN GEORGE MARSHALL ALLEN AND SAID BANKERS TRUST COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Henry Mannix, Esq., Russell D. Morrill, Esq., and A. C. Newlin, Esq., for the petitioner.
Harold Allen, Esq., for the respondent.
This proceeding involves a deficiency in income tax for the year 1922, in the amount of $24,679.51, and a penalty of $6,169.88, asserted against petitioner for delinquency in filing its income-tax return for said year. It is alleged that respondent erred (1) in determining that petitioner derived taxable income upon the receipt of a liquidating dividend from the W. A. Gaines Company; (2) in determining that the amount of said dividend was $342,752.64, instead of $327,140; (3) in computing the gain derived from said liquidating dividend upon the basis of cost of the stock to petitioner's grantor instead of upon the basis of the fair market value of said stock as of the date of acquisition by petitioner; (4) in failing to allow as a deduction from the gross income of the trust the amount of $1,635.70 paid in 1922 as a commission to petitioner for receiving the principal of the trust; (5) in imposing tax under section 202 (a) (2) of the Revenue Act of 1921, which section petitioner alleges to be unconstitutional; and (6) in imposing the penalty against petitioner for delinquency in filing its return. At the hearing petitioner, by amendment and by motion to dismiss, denied the jurisdiction of the Board in this proceeding, on the ground that respondent had directed and mailed the deficiency notice to the "Bankers Loan and Trust Company, Trustee, George Marshall Allen Trust," instead of to petitioner in its true name, to wit, Bankers Trust Company.
FINDINGS OF FACT.
Petitioner is a corporation, organized and existing under the laws of the State of New York, with its principal office at New York City.
Prior to December 23, 1922, George Marshall Allen was the owner of 122 shares of the capital stock of the W. A. Gaines Company, a corporation, which he had acquired at a cost of $234,715.86 and which, on said date, had a fair market value of not less than $327,140.
On December 23, 1922, by irrevocable indenture, which is in evidence and is herein incorporated by reference, Allen transferred said stock to petitioner upon trust to collect the income therefrom and to pay the same to him in equal monthly installments during his lifetime and, upon his death, to pay said income to his wife and/or daughter, or her issue, upon certain conditions which are not here material. If none of these persons should be living at the time of the grantor's death, then the trust was to terminate and the principal thereof to be distributed in accordance with the statutes of distribution of the State of New York. Allen reserved to himself the power to direct the investment of the corpus of the trust and to add thereto from time to time should he so desire. The instrument also provided that petitioner, as trustee, should receive a commission of 2 per cent per annum upon income and a commission of 1 per cent upon the market value of the principal of the trust fund, one-half of the latter to be paid upon the execution of the indenture and the balance upon termination of the trust, as compensation for its services in administering the trust.
On December 27, 1922, by transfer from the funds of this trust to its commission account, petitioner received payment of the acceptance commission of one-half of 1 per cent of the trust fund in the amount of $1,635.70.
On December 26, 1922, the W. A. Gaines Company was liquidated and on or about that date petitioner received a liquidating dividend in the amount of $327,140 in exchange for and in cancellation of 122 shares of stock of said company held by it as trustee as aforesaid. The entire amount of said dividend represented earnings or profits accumulated since February 28, 1913. No other dividend or distribution was received by petitioner from said company.
Thereafter petitioner sought counsel and was advised that no tax liability arose at that time upon the receipt of said liquidating dividend and that it need not file an income-tax return for the year 1922 reporting the same. Relying upon this advice, petitioner filed no such return until October 7, 1930.
Respondent now admits error in asserting that the amount of said liquidating dividend received by petitioner was $342,752.64 and agrees that the correct amount thereof is $327,140. The difference between this amount and $234,715.86, the cost basis of said stock in the hands of the grantor, or $92,484.14, respondent has included in petitioner's income for the year 1922, as profit derived upon said liquidation.
On September 27, 1927, respondent mailed to "Bankers Loan & Trust Co., Trustee, George Marshall Allen Trust, 14 Wall Street, New York, New York," the deficiency notice asserting the tax and penalty here in controversy. Petitioner's correct name is "Bankers Trust Company" and its correct address is "16 Wall Street, New York, New York."
Before considering this case upon its merits, let us dispose of two preliminary issues raised by petitioner. By amendment to its petition and by motion to dismiss petitioner challenges the jurisdiction of the Board, objecting to the misnomer in the deficiency notice and asserting that, because of his failure to address said notice to petitioner under its correct name and address, respondent has not complied with the statutory requirements in that regard. We attach no importance to this complaint. Petitioner was not misled by this misnomer. It is not alleged that the notice was not delivered to petitioner, or that its delivery was delayed, or that any of petitioner's rights have been transgressed. The name used was sufficiently similar to petitioner's correct title to put it on notice that the letter related to its pending controversy with the Treasury Department, and the body of the letter, and the descriptive words, "Trustee of George Marshall Allen Trust," established the identity of the intended recipient beyond all doubt. Moreover, from what it knew to be its deficiency notice, petitioner took a timely appeal, captioned it by its correct title, coupled with descriptive words of its own choosing, raised no issue of misnomer, and prosecuted that appeal to its conclusion. By thus accepting the deficiency notice for its own petitioner has cured any error of which it might previously have complained. Cf. Kay Manufacturing Co., 18 B. T. A. 753; Fidelity Storage Corporation, 18 B. T. A. 517.
With respect to petitioner's assertion that section 202 (a) (2) of the Revenue Act of 1921 is unconstitutional, suffice it to point out that the constitutionality of that provision has been sustained in Taft v. Bowers, 278 U. S. 470.
This brings us to the main issue in this case. The amount received by petitioner upon...
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