BESSEMER LIMESTONE AND CEMENT CO. v. Commissioner
| Decision Date | 13 November 1956 |
| Docket Number | Docket No. 21667. |
| Citation | 1956 TC Memo 250,15 TCM (CCH) 1277 |
| Parties | The Bessemer Limestone and Cement Company v. Commissioner. |
| Court | U.S. Tax Court |
Aaron Holman, Esq., for the petitioner. James A. Scott, Esq., for the respondent.
Memorandum Findings of Fact and Opinion
Respondent has determined deficiencies in income, excess profits, and declared value excess profits taxes of petitioner as follows:
Deficiency
Income Tax
1941 ....................... $ 4,800.03
Excess Profits Tax
1941 ....................... 30,251.38
1942 ....................... 97,703.45
Declared Value Excess-Profits
Tax
1941 ....................... 3,231.77
In addition to the foregoing, respondent alternatively claims by an amendment to his answer an increased deficiency in income tax for 1941, if any, which results from the reduction, if any, "of excess profits tax by the allowance, if any, of unused excess profits credit carry over or carry backs or by reason of any other adjustments called for by the Court's opinion which have the effect of increasing income tax net income * * *."
Petitioner claims overassessments in income and excess profits taxes in the amounts of $34,583.68 and $90,752.93 for 1941 and 1942, respectively. Petitioner also claims refunds for deposits (which included interest) made in respect of the deficiencies determined for 1941 and 1942 in the amounts of $53,858.67 and $110,132.93, respectively. Respondent in his notice of deficiency also determined an overassessment in income tax for 1942 in the amount of $15,932.66. Respondent now urges that this Court has no jurisdiction in this proceeding to redetermine the income tax liability for the year 1942.
By virtue of uncontested adjustments and issues which petitioner has either conceded or abandoned, a computation under Rule 50 is necessary.
This proceeding involves, in addition to certain issues raised by amended pleadings, questions which were severed and hearing thereon postponed pending a hearing and ruling by this Court as to whether petitioner acquired certain assets in 1935 in a nontaxable reorganization or exchange. Our findings of fact and opinion with respect to that question are reported as The Bessemer Limestone and Cement Company, 22 T. C. 303 Dec. 20,337.
The principal issue now presented is the basis to petitioner of the assets received by it in an exchange incident to a 77-B reorganization pursuant to which petitioner was revived to take over and continue the business of The Bessemer Limestone and Cement Company, a Delaware corporation, and which transaction constituted a tax-free exchange pursuant to section 112(b)(5) of the Revenue Act of 1934.
All other questions, save those relating to petitioner's income tax liability for 1942 and the allowance of a postwar credit with respect to petitioner's excess profits tax for 1942, are initially dependent upon the primary question, the solution of which will serve as a basis for the determination of the remaining issues.
All of the facts which were stipulated are so found. Additional facts were adduced from exhibits received at the hearing, which exhibits are included herein by this reference. Our findings of fact and opinion upon the severed issue reported at 22 T. C. 303 Dec. 20,337 are also made a part hereof.
Petitioner is an Ohio corporation with its principal place of business at Youngstown, Ohio. It kept its books and filed its income and excess profits tax returns on an accrual basis for the years 1941 and 1942. Its returns for the years here involved were filed with the collector of internal revenue for the eighteenth district of Ohio.
From the date of its organization in 1919 until February 1, 1927 petitioner engaged in the limestone and cement business. On or about the latter date petitioner's assets were indirectly transferred to The Bessemer Limestone and Cement Company, a Delaware corporation (hereinafter called Delaware). Thereafter petitioner did not dissolve but remained dormant and inactive while Delaware continued the operation of its former business. During the depression years Delaware experienced financial difficulties. Around August 1, 1932, Delaware defaulted on certain payments due on its bonded indebtedness and thereafter remained in default. A bondholders' protective committee representing the owners of more than three-fourths of Delaware's outstanding bonds was organized in August 1932. A trustee under the mortgage indenture declared the principal of the bonds to be due and payable on or about April 30, 1934 and then filed foreclosure actions against Delaware on June 6, 1934 in the United States District Court for the Northern District of Ohio, Eastern Division, and the United States District Court for the Western District of Pennsylvania.
On December 10, 1934, Delaware filed a petition in the United States District Court for the Northern District of Ohio, Eastern Division, for reorganization under section 77-B of the National Bankruptcy Act, alleging that it was unable to meet its debts as they matured.
Delaware's balance sheet as of the close of business on December 9, 1934, listed assets in the amount of $4,733,401.88 which included, inter alia, $3,635,537.62 in plant, equipment, and real estate and $235,003.45 in advanced royalties. Its liabilities to creditors were recorded at $2,850,561.12. In addition it was contingently liable on notes payable of the Goff-Kirby Co., Cleveland, Ohio, in the amount of $350,000 and it had unpaid cumulative dividends on Class "A" stock to January 1, 1935, in the amount of $525,000.
In the proceedings which followed the filing of the petition a plan of reorganization was conceived and carried out under the guidance of the District Court. Pursuant to this plan petitioner was revived to be the transferee of Delaware's assets and the successor to its business. On July 1, 1935, pursuant to the decree of the District Court, Delaware transferred all of its assets to the petitioner by warranty deeds. Thereafter and pursuant to the plan of reorganization petitioner issued its stock (both preferred and common) and securities in designated amounts to Delaware bondholders and note creditors in exchange for their evidences of indebtedness and it issued common stock in agreed upon allotments to the holders of Delaware's Class "A" and Class "B" stock in exchange for their respective shares.
Delaware had stock issued and outstanding and was indebted to bondholders and note creditors as of June 30, 1935, as follows:
Interest accrued
as of
Principal Jan. 1, 1935 Shares
Bondholders ......................... $2,152,400.00 $408,059.15
Note Creditors ...................... 251,684.86 33,452.19
Contingent claim on $350,000 notes of
the Goff-Kirby Co. per Settlement
proposal .......................... 175,000.00 14,311.42
_____________ ___________
$2,579,084.86 $455,822.76
Class "A" no par value .............. ............. ........... 50,000
Class "B" no par value .............. ............. ........... 100,000
The stockholders, bondholders, and note creditors of Delaware, who participated in the plan of reorganization, had an aggregate cost basis of their respective shares, bonds, and notes as of June 30, 1935 as follows:
Class "A" stockholders ..... $1,420,434.97
Class "B" stockholders ..... 1,464,032.60*
Bondholders ................ 1,909,483.78
Note creditors ............. 251,684.86
Goff-Kirby note holders .... 175,000.00
_____________
$5,220,636.21
* On brief petitioner lists this amount as
$1,465,032.60
The balance sheet of Delaware at June 30, 1935 reveals that its liabilities to creditors aggregated $3,190,789.12 and that it possessed assets as follows:
CURRENT ASSETS:
Cash:
On hand and on deposit ....................... ............. ............. $ 266,242.26
Receivables:
Customers' notes and accounts receivable ..... ............. $ 118,091.98 .............
Less:
Allowance for doubtful ................... $ 5,088.26 ............. .............
Allowance for discounts .................. 4,079.98 9,168.24 108,923.74
_____________ _____________
Inventory:
Raw materials, clinker and cement ............ 174,151.71
Supplies (less reserve) ...................... ............. 60,913.22
Sacks (less reserve) ......................... ............. 92,672.66 327,737.59
_____________
Advance stripping for future 12
mos operation .............................. ............. ............. 12,900.00
Other Assets:
Rents receivable ............................. 28,699.67 ............. .............
Less:
Allowance for doubtful ................... 28,699.67 00 .............
_____________
Other receivables ............................ ............. 1,822.99
Other assets ................................. ............. 382,330.99 384,153.98
_____________
Capital Assets:
Limestone properties (cost) ..................
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