Britt v. United States
| Decision Date | 14 August 1968 |
| Docket Number | Civ. No. 66-4,66-5. |
| Citation | 292 F. Supp. 6 |
| Parties | T. M. BRITT and Jane E. Britt, Plaintiffs, v. The UNITED STATES of America, Defendant. Harold M. BRITT, Plaintiff, v. The UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Middle District of Florida |
M. W. Wells, Jr., Maguire, Voorhis & Wells, Orlando, Fla., for plaintiffs.
Edward F. Boardman, U. S. Atty., Tampa, Fla., Eugene P. Kopp, United States Dept. of Justice, Washington, D. C., for defendant.
AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW
These cases have been consolidated for all purposes and each is a suit for a refund of income taxes and interest paid to the UNITED STATES OF AMERICA as a result of an assessed deficiency. The cases were by agreement of counsel tried before the Court without a jury. The evidence consisted of a stipulation of facts filed January 29, 1968, the supplement to the stipulation of facts filed January 31, 1968, interrogatories propounded by the defendant to the plaintiffs filed November 22, 1966, the answers to said interrogatories filed December 8, 1966, and the depositions of ROBERT F. STONEROCK, JAMES F. McKEY, and T. M. BRITT.
The controversy in these cases arises as a result of T. M. BRITT on September 27, 1958 having caused to be formed two corporations, TOMMIE BRITT CORPORATION and CONNIE CORPORATION, and HAROLD M. BRITT on the same date having caused to be formed HAROLD M. BRITT, INC., a corporation.
BRITT FRUIT COMPANY was a partnership or joint venture organized in December, 1952, in which T. M. BRITT and HAROLD M. BRITT each owned a 50% interest. On October 1, 1958, T. M. BRITT transferred to TOMMIE BRITT CORPORATION an undivided 14% interest in the BRITT FRUIT COMPANY assets and another undivided 14% interest in BRITT FRUIT COMPANY assets to the CONNIE CORPORATION. On the same date HAROLD M. BRITT transferred to HAROLD M. BRITT CORPORATION an undivided 21% interest in the BRITT FRUIT COMPANY assets.
At the time TOMMIE BRITT CORPORATION and CONNIE CORPORATION were organized, T. M. BRITT became the sole stockholder of each of those two corporations; at the time of the formation of HAROLD M. BRITT, INC., HAROLD M. BRITT became the sole stockholder thereof.
On December 30, 1960, 20 (twenty) of the 1,000 shares of HAROLD M. BRITT, INC., were transferred and reissued to TOMMIE E. BRITT, CONSTANCE J. BRITT, and EULA B. GRANT in certificates of 5 (five) shares, 5 (five) shares and 10 (ten) shares respectively as gifts of stock from HAROLD M. BRITT.
In 1959, 60 (sixty) shares of the 1,000 shares of TOMMIE BRITT CORPORATION were transferred and reissued to THOMAS E. BRITT, son of T. M. BRITT, as a gift of stock from T. M. BRITT; a similar gift was made in 1960 in the amount of 40 (forty) shares and a similar gift in 1962 in the amount of 60 (sixty) shares.
In 1959, 60 (sixty) shares of the 1,000 shares of CONNIE CORPORATION were transferred and reissued to CONSTANCE J. BRITT, daughter of T. M. BRITT, as a gift of stock from T. M. BRITT; a similar gift was made in 1960 in the amount of 40 (forty) shares and a similar gift in 1962 in the amount of 60 (sixty) shares.
On October 30, 1959, a Form 2553, Election by Small Business Corporation, was filed for TOMMIE BRITT CORPORATION and another for CONNIE CORPORATION for the fiscal year ending September 30, 1960 and for each subsequent year thereafter. In October 1963, a Form 2553, Election by Small Business Corporation, was filed for HAROLD M. BRITT, INC. Since the filing of the Small Business Corporation Election forms the income of the various corporations has been reflected and included in the individual tax returns of the respective stockholders.
Initially the Government contended that all the income of TOMMIE BRITT CORPORATION and CONNIE CORPORATION for the calendar year 1959 was includable in the joint income of T. M. BRITT and JANE E. BRITT, his wife, and that all of the income of HAROLD M. BRITT, INC., for the years prior to the Small Business Corporation Election was includable in the individual income of HAROLD M. BRITT. At the time of trial counsel for the Government conceded that the minority interests in each of those corporations should have been recognized by the Internal Revenue Service and that, therefore, the deficiencies should have been adjusted accordingly. To that extent, then, the Government conceded the validity of the claims of the plaintiffs in these cases.
After considering the evidence and arguments of counsel made both orally and in written briefs and the law applicable to this type of case, this Court makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. The Court adopts and incorporates herein by this reference the stipulation of facts filed January 29, 1968.
2. The Court adopts and incorporates herein by this reference the supplement to the stipulation of facts filed January 31, 1968.
3. Each of the three corporations, TOMMIE BRITT CORPORATION, CONNIE CORPORATION and HAROLD M. BRITT, INC., were caused to be formed as convenient vehicles through which T. M. BRITT and HAROLD M. BRITT could transfer during their lifetimes portions of their assets.
4. None of the three corporations was a sham but they had no business purpose other than to act as vehicles for the transfer of assets as aforesaid.
5. From the dates of incorporation to the times of being treated as Subchapter S corporations, no substantial transfer of stock had been made by T. M. BRITT as to TOMMIE BRITT CORPORATION and CONNIE CORPORATION or by HAROLD M. BRITT as to HAROLD M. BRITT, INC.
1. The fact that if there had been a loss instead of profit in the contested years by each of the corporations the Government could have and probably would have held the stockholders to the existence of the separate jural persons and thereby precluded a tax loss in the returns of the individual stockholders is not material to this case because the Supreme Court of the United States has held:
So, although the plaintiffs might be held to the corporate form in the contested years in the event such corporate existence had proved disadvantageous taxwise to the individual plaintiffs, nevertheless, the Government is not bound to such corporate form and may look at the activities for a determination as to whether or not taxwise such corporate form was unreal or a sham.
2. For a corporation to be considered as a separate jural person for the purpose of taxation it must engage in some industrial, commercial, or other activity besides avoiding taxation. National Investors Corp., v. Hoey, 144 F.2d 466 (2nd Cir. 1944). In the National Investors case the plaintiff there, seeking a tax refund, claimed a loss in the value of shares of a corporation, Investors Fund, which had been organized to unite into a single corporation the plaintiff and various other investment corporations but the plan was rejected by the stockholders and liquidation of the Investors Fund resulted in the loss claimed. The Second Circuit held that, although Investors Fund was initially a mere shell, when it was used as a means of putting through the consolidation that such use was a "business activity" in the sense contemplated by the tax statutes for the recognition of a corporation as a separate jural person, but when the consolidation plan was rejected and the corporation had no further reason for existence that it could be recognized as a separate jural person for only a reasonable time thereafter so that unless the loss in value of its shares occurred within the reasonable time thereafter such loss was not recognizable.
4. In the cases at bar, although the purpose of utilizing the corporations for the transfer of assets is a legitimate purpose and can result in the transfer of assets to other parties recognizable by the tax laws, until such transfers have substantially occurred, the corporations were not engaged in any business activities within the meaning of the income tax statutes as applicable to the years in issue here, so as to result in recognition of the corporations' income as not includable in the personal incomes of the principal stockholders. Therefore, to the extent that the corporations were merely the repositories of the individual assets of T. M. BRITT and HAROLD M. BRITT, the income from such assets should be treated as the individual income of T. M. BRITT and HAROLD M. BRITT, individually.
Therefore, except to the extent that the Government has conceded the merits of the claims of the respective plaintiffs, as above noted, the claims of the plaintiffs should be denied.
Counsel are requested to submit a proposed form of judgment in each case in accordance with the aforesaid findings of fact and conclusions of law.
The parties, through their respective counsel, stipulate and agree to the facts herein set forth, for the purpose of these actions only:
1. T. M. Britt and Jane E. Britt are husband and wife, citizens of the United States of America, and residents of Orange County, Florida. They have two children, Thomas (Tommy) E. Britt, born September 3, 1937, and Constance (Connie) Britt, born December 28, 1940.
2. Harold M. Britt is single, a citizen of the United States of America, and a resident of ...
To continue reading
Request your trial
-
Britt v. United States
...to the individual taxpayers and should be included as part of their taxable income for the years in question. Britt v. United States, M.D.Fla.1968, 292 F.Supp. 6. We I. The case was tried upon a stipulation of facts. Because of the nature of the case, we feel that it is important to go into......
-
Beirne v. Comm'r of Internal Revenue
...states that the advances totaled only $68,290.29. 5. Respondent does not contend that Kelly Supply is itself a sham, Britt v. United States, 292 F.Supp. 6 (M.D. Fla. 1968), but rather that the gifts of the stock thereof were without economic reality. 6. SEC. 1375(c). TREATMENT OF FAMILY GRO......