Chase National Bank v. COMMISSIONER OF INTERNAL REVENUE

• Citation: 41 BTA 430
• Decision Date: 20 February 1940
• Docket Number: 93856,93854.,93855,Docket No. 93857
• Parties: THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE UNDER TRUST AGREEMENT DATED JULY 1, 1931, BETWEEN AMERICAN DEPOSITOR CORPORATION, DEPOSITOR, AND THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE, CREATING "CORPORATE TRUST SHARES, ACCUMULATIVE SERIES," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. [PG] THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE UNDER TRUST AGREEMENT DATED JULY 1, 1931, BETWEEN AMERICAN DEPOSITOR CORPORATION, DEPOSITOR, AND THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE, AS MODIFIED BY SUPPLEMENTAL AGREEMENT DATED SEPTEMBER 23, 1932, CREATING "CORPORATE TRUST SHARES, ACCUMULATIVE SERIES (MODIFIED)," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE UNDER TRUST AGREEMENT DATED JULY 1, 1931, BETWEEN AMERICAN DEPOSITOR CORPORATION, DEPOSITOR, AND THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE, CREATING "CORPORATE TRUST SHARES, SERIES AA," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE UNDER TRUST AGREEMENT DATED JULY 1, 1931, BETWEEN AMERICAN DEPOSITOR CORPORATION, DEPOSITOR, AND THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE, AS MODIFIED BY SUPPLEMENTAL AGREEMENT DATED SEPTEMBER 23, 1932, CREATING "CORPORATE TRUST SHARES, SERIES AA (MODIFIED)," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

41 B.T.A. 430 (1940)

THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE UNDER TRUST AGREEMENT DATED JULY 1, 1931, BETWEEN AMERICAN DEPOSITOR CORPORATION, DEPOSITOR, AND THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE, CREATING "CORPORATE TRUST SHARES, ACCUMULATIVE SERIES," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

PG THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE UNDER TRUST AGREEMENT DATED JULY 1, 1931, BETWEEN AMERICAN DEPOSITOR CORPORATION, DEPOSITOR, AND THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE, AS MODIFIED BY SUPPLEMENTAL AGREEMENT DATED SEPTEMBER 23, 1932, CREATING "CORPORATE TRUST SHARES, ACCUMULATIVE SERIES (MODIFIED)," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE UNDER TRUST AGREEMENT DATED JULY 1, 1931, BETWEEN AMERICAN DEPOSITOR CORPORATION, DEPOSITOR, AND THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE, CREATING "CORPORATE TRUST SHARES, SERIES AA," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE UNDER TRUST AGREEMENT DATED JULY 1, 1931, BETWEEN AMERICAN DEPOSITOR CORPORATION, DEPOSITOR, AND THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, AS TRUSTEE, AS MODIFIED BY SUPPLEMENTAL AGREEMENT DATED SEPTEMBER 23, 1932, CREATING "CORPORATE TRUST SHARES, SERIES AA (MODIFIED)," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 93857, 93855, 93856, 93854.

Board of Tax Appeals.

Promulgated February 20, 1940.

Weston Vernon, Jr., Esq., for the petitioners.

Walt Mandry, Esq., for the respondent.

The Commissioner determined the following deficiencies in petitioners' respective income and excess profits taxes for 1934:

                -----------------------------------------------------------------------------------------------------------------
                                                                                                   | Income         |   Excess
                                                                                                   | tax deficiency | profits tax
                                                                                                   |                |  deficiency
                -----------------------------------------------------------------------------------|----------------|------------
                American Depositor Corporation trust agreement dated as of July 1, 1931, Corporate |                |
                  Trust Shares, Accumulative Series ______________________________________________ |   $1,306.64    |     $475.14
                American Depositor Corporation trust agreement dated as of July 1, 1931, and       |                |
                  supplemental agreement dated September 23, 1932, Corporate Trust Shares,         |                |
                   Accumulative Series (Modified) ________________________________________________ |      451.09    |      164.03
                American Depositor Corporation trust agreement dated as of July 1, 1931, Corporate |                |
                  Trust Shares, Series AA ________________________________________________________ |    1,046.24    |      380.45
                American Depositor Corporation trust agreement dated as of July 1, 1931, and       |                |
                  supplemental agreement dated September 23, 1932, Corporate Trust Shares,         |                |
                  Series AA (Modified) ___________________________________________________________ |      365.86    |      133.04
                -----------------------------------------------------------------------------------------------------------------
                

Petitioners assail the determinations that each was an association taxable as a corporation. Other issues were settled by agreement. The facts have all been stipulated.

FINDINGS OF FACT.

The Chase National Bank of the City of New York, a national banking association with principal office in New York, is trustee under each of four trust agreements with the American Depositor Corporation (herein called depositor), a New York corporation with principal office in New York. Two of these agreements, dated July 1, 1931, were executed on September 28, 1931, and relate to "Corporate Trust Shares, Accumulative Series" (Docket No. 93857) and to "Corporate Shares, Series AA" (Docket No. 93856), respectively. The other two, termed "Supplemental Agreements" and bearing the same styles plus "(Modified)", were executed September 23, 1932, and incorporate or modify provisions of the former (Docket Nos. 93855, 93854). In all of these agreements the depositor is party of the first part; the trustee is party of the second part, and "the holders from time to time of the Certificates for Corporate Trust Shares" are parties of the third part. All four agreements are in the record and are hereby incorporated in these findings.

The agreement of 1931, "Corporate Trust Shares, Accumulative Series", recites that the depositor has deposited with the trustee 16 shares in each of 30 designated corporations, termed a "Stock Unit"; that the trustee has issued to the depositor certificates representing the ownership of 10,000 undivided 1/10,000 interests in a stock unit"; and that the depositor proposed to deposit with the trustee from time to time additional stock units against each of which the trustee was to issue certificates representing a total of 10,000 trust shares. It was then provided that the additional units deposited should consist of the same number and kind of shares as those constituting the first, augmented or altered, however, by common stock received on the former as a stock dividend or in the course of a merger, consolidation, sale of corporate assets, or exchange of stock, and that the trustee should deliver a certificate or certificates for an aggregate of 10,000 trust shares upon deposit by the depositor of a stock unit, together with cash equal to the amount of cash then held undistributed by the trustee for each unit in accordance with labor specified provisions. Certificates for shares constituting the stock units were to be registered in the name of the trustee or its nominee; "to the extent that may be necessary or proper to carry out the powers hereby granted", the trustee was directed to exercise generally the privileges of owner, subject, however, to directions of the depositor in respect of voting; to receive all income and distributions upon the shares, and on June 30 and December 31 of each year to pay proportionately to the trust share holders, upon presentation of coupons attached to the trust share certificates, all "currently distributable funds." "Currently distributable funds" were defined to comprise dividends, interest, cash distributions; the proceeds of required sales of deposited shares, subscription rights and other property; cash received upon deposits for the issuance of trust share certificates; cash received as distributions on mergers, consolidations, and dissolutions of the corporations issuing the shares; and interest allowable upon deposited funds until their required disbursement — the total so distributable to be reduced by specified expenditures made in connection with stock assessments, with changes in the capital structure of a corporation, the issuer of deposited shares (sometimes called a constituent corporation), and in adjusting claims relating thereto.

The trust administration was prescribed minutely by provisions requiring that the trustee hold as part of the stock units all shares of common stock of a constituent corporation which might be distributed to it as a stock dividend or as a distribution in the course of a "reclassification or change" in capital structure, or in the course of a merger or consolidation or action by a protective committee for shareholders' interests. Sales of fractional shares and shares in excess of a number divisible by the number of stock units were permitted for even division. All subscription rights, securities, property and other types of shares distributed on constituent shares, and also property distributed on dissolution of a constituent corporation were to be sold within a determinable time, normally 45 days after receipt, through a stock exchange if possible, and if not, in such manner and at such price as the trustee might determine. The trustee was directed to surrender the deposited evidences of share ownership in the case of such requirement under any plan for a change in structure of a constituent corporation, its merger or reorganization, and to follow the example of a majority of common shareholders in respect of action proposed by any protective committee for shareholders' interests. It was authorized to use discretion in the exercise of any option given in connection with a reclassification or change in capital structure, and also in assenting to proposals of a protective committee provided that the consensus of a majority of the holders of common shares should not be ascertainable. Any amounts required to be paid in the course of exchanges pursuant to mergers, consolidations, or protective committee plans were to be drawn first from amounts received thereunder, if any, then from currently distributable funds, and then, if necessary, were to be met by repayable advances of the trustee or proceeds from the sale of shares received. Stock assessments were to be paid out of currently distributable funds, or, if necessary, from repayable advances of the trustee.

While the additional stock units which might be deposited with the trustee from time to time were normally to be equivalent in composition to that first deposited, the depositor was granted the right upon certain events to notify the trustee within 90 days after their occurrence that it found the purchase of a certain stock in the stock unit portfolio impracticable or inadvisable, whereupon it became the trustee's duty to sell all shares of that stock held by it. The events entitling the depositor to this right were (a) that less than 2,500 shares of the stock had been sold during a...