Camp Wolters Land Co. v. Commissioner of Internal Rev.
| Decision Date | 27 February 1947 |
| Docket Number | No. 11642.,11642. |
| Citation | 160 F.2d 84 |
| Parties | CAMP WOLTERS LAND CO. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Fifth Circuit |
R. B. Cannon, of Fort Worth, Tex., for petitioner.
Douglas W. McGregor, Asst. Atty. Gen., Hilbert P. Zarky, Robert N. Anderson and Paul F. Mickey, Sp. Assts. to the Atty. Gen., Sewall Key, Acting Asst. Atty. Gen., J. P. Wenchel, Chief Counsel, and Charles E. Lowery, Sp. Atty., Bur. Int. Rev., both of Washington, D. C., for respondent.
Before McCORD, WALLER, and LEE, Circuit Judges.
The taxpayer has admittedly been a Texas corporation since April 25, 1941, but the controversy here revolves chiefly around its status — corporate or otherwise — between that date and the middle of February in the same year at, and after, which time its incorporators made contracts in the name of, and in behalf of, the taxpayer before its charter had been filed with the Secretary of State as required by Texas law. Unless otherwise noted all events were in 1941.
The facts found by the Tax Court may be summarized as follows:
Prior to January 1 the City of Mineral Wells, Texas hereafter referred to as "the City", had leased six or seven thousand acres of lands from the owners and in turn sub-leased to the United States for use as an Army camp. Shortly thereafter it was determined that the acreage so leased was inadequate. When the City attempted to lease further acreage from the owners in the selected area it found that the owners were willing to sell, but not to lease, their land. Being then involved in municipal bankruptcy proceedings, the City was financially unable to purchase these lands. Thereupon a group of business men in the City, in order to prevent the loss of the Army camp, agreed to organize a corporation which would purchase them with funds obtained from stock subscriptions. They began negotiations to this end early in January, 1941, with the owners of these lands. They also made an oral agreement with the City that it would lease the lands when so acquired and that it would in turn sublease them to the United States. Simultaneously, and for the effectuation of the foregoing plan, the men began to organize a corporation (the taxpayer) with a capital stock of $60,000.00. By the middle of February all of the capital stock had been subscribed and by March 16 $41,500.00 had been paid in. Two local banks then loaned "Camp Wolters Land Company" the total sum of $19,482.08. A donation in the sum of $750.00 was also received. These funds, in excess of $61,700.00, were deposited in the bank in the name of the taxpayer, of which $52,952.60 were paid to Windham, Lamkin, Keener, Johnson, Watson, and Brock between March 17 and March 29 for deeds which were executed in the name of the corporation.
Four other tracts were leased from the owners in the name of the corporation and on March 1 a lease to the City from "Camp Wolters Land Company, by A. H. Guinn, President, attest, S. C. Myers, Secretary," was signed, although not acknowledged until the 8th of May. Nevertheless, the lease became operative on March 1, on which date the United States went into possession. The lease rental to be paid by the City was $10,901.02 per year for the first three years and $12,501.02 per year thereafter. It was an annual lease, renewable from year to year at the City's option, and was renewed in 1942, 1943, and 1944.
Prior to January the City had leased from the owners, Deakins, Maddux, and Sullivan, certain other tracts, which it thereafter sub-let to the Government, wherein the owners had each reserved small tracts of from five to ten acres on which their homes and other improvements were situated. Some time in February, however, it was discovered that these reserved tracts would be in the direct line of fire and that the improvements thereon would have to be purchased, torn down, and removed, the accomplishment of which was made a condition precedent by the Army to a continuation of the construction of the firing range for which the taxpayer's lands had been leased. The City had no money with which to purchase and remove these houses and in consequence the group, acting on behalf of, with the funds of, and in the name of, the taxpayer, bought those improvements, had same demolished and removed. Checks from the funds on deposit in the name of the taxpayer, on the dates, to the payees, and in the amounts as follows, were issued:
March 18, 1941 Deakins ...... $3,500.00
March 18, 1941 Maddux ....... 1,750.00
March 19, 1941 Sullivan ..... 4,000.00
_________
Total .................... $9,250.00
The improvements were sold for $1,000.00 and were removed some time in April. The United States paid taxpayer $1,600.00 as expenses for the removal of the demolished improvements. A net loss from the sale of these improvements of $6,650.00 resulted. It was necessary to purchase and remove these buildings in order to secure a tenant, and to realize on the lease.
In 1942 a fire partially destroyed some of the uninsured improvements on one of the tracts which the taxpayer had purchased, causing a loss of $2,187.50. The peach orchard of 3180 trees on the Lamkin tract was also destroyed due to the refusal of the Army to allow the lessee access to the tract so as to care for the orchard.
The constant and heavy bombardment carried on by the Army put the houses on the Windham and Brock tracts in such bad condition that they had no salvage value. In 1943 the Army was allowed to use these houses in connection with its training in street fighting. For the deterioration thus incurred petitioner claimed depreciation of $2,353.41 in its 1941 return and $3,906.25 in its 1942 return, both of which were, with equal facility, disallowed by the Commissioner.
The corporation failed to file an excess profits tax return on December 31, 1941.
The Commissioner disallowed: (1) any deduction for the loss on the improvements which had to be torn down on the Deakins, Maddux, and Sullivan tracts; (2) any loss caused by the fire on the Windham tract; (3) any loss on the peach orchard on the Lamkin tract; (4) any depreciation that occurred by virtue of the damage to the various improvements on the lands owned by the taxpayer caused by the heavy firing.
Moreover, the taxpayer's return was made on the theory that it was organized and in existence for tax purposes not later than March 16, 1941, but the Commissioner determined that it was not organized for tax purposes until May 8 and that it, accordingly, should pay an excess profits tax deficiency in the sum of $253.23 and a penalty of $65.82.
The Tax Court sustained the Commissioner in every respect except that it held that the corporate existence of the taxpayer began on April 25 instead of May 8, and that the earlier date should be used in determining the taxpayer's tax liabilities.
In sustaining the Commissioner the Tax Court decided that:
1. The $6,650.00 loss on account of the purchase and removal of the improvements from the Deakins, Maddux, and Sullivan tracts occurred in April but it was not shown whether it occurred before or after April 25 or whether or not it was the result of transactions by corporation's organizers or by the corporation and were not transactions of the taxpayer.
2. There was no adequate proof of any cost basis to the taxpayer of the improvements destroyed by fire.
3. There was no adequate proof of any cost basis to the taxpayer to support the deductions claimed for depreciation.
4. The taxpayer's corporate existence began April 25 instead of March 1, the date upon which it made its lease, or March 16, when it began to acquire certain properties, and that the date upon which it filed its charter with the Secretary of State should be used as the date by which the annualization of excess profits income should be reckoned.
5. The lease rentals for the period from March 1 to April 25 when the charter was filed...
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