CIR v. Consolidated Premium Iron Ores, Limited
| Decision Date | 10 April 1959 |
| Docket Number | No. 13473-13475.,13473-13475. |
| Citation | 265 F.2d 320 |
| Parties | COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. CONSOLIDATED PREMIUM IRON ORES, LIMITED, Respondent. COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. William R. DALEY and F. Cassie Daley, Respondents. COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Cyrus S. EATON, Respondent. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Myron C. Baum and Meyer Rothwacks, Dept. of Justice, Washington, D. C., Charles K. Rice, Lee A. Jackson, and A. F. Prescott, Dept. of Justice, Washington, D. C., on brief, for petitioner.
Abe Fortas, Washington, D. C., I. W. Sharp and Robert W. Sharp, Cleveland, Ohio, Milton V. Freeman and Carolyn E. Agger, Washington, D. C., on brief, for respondents.
Before MARTIN and MILLER, Circuit Judges, and CECIL, District Judge.
These cases are before the Court on petitions of the Commissioner of Internal Revenue to review a decision of The Tax Court of the United States upon which judgments were entered on July 24, 1957, pursuant to its Findings of Fact and Opinion filed April 23, 1957.
In cases numbered 13,474 in which William R. Daley and F. Cassie Daley are respondents and 13,475, in which Cyrus S. Eaton is respondent, the question presented is:
Were the respondents Eaton and Daley liable individually for income taxes on the difference between one cent a share paid for 1,437,500 shares of stock of Steep Rock Iron Mines, Limited, by Consolidated Premium Iron Ores, Limited, and delivered to it and the alleged fair market value of said stock.
The petitioner charges that this difference represents compensation to respondents Eaton and Daley for services rendered by them to Steep Rock Iron Mines, Limited.
In case numbered 13,473, in which Consolidated Premium Iron Ores, Limited, is respondent, the question presented is: Did it have a permanent establishment in the United States within the meaning of the Tax Convention and Protocol between the United States and Canada, 56 Stat. 1399, so as to be subject to taxes in the United States.
If Premium did have a permanent establishment in the United States, then the further question arises as to whether or not it was "engaged in trade or business within the United States", in any of the taxable years from 1943 to 1949.
The petitioner concedes that if Eaton and Daley are liable individually for income tax on the difference between the cost and alleged value of 1,437,500 shares of Steep Rock stock as above mentioned, then there would be no tax liability against Premium for such difference in value.
In addition to this alternative liability against Premium on the stock transaction, the petitioner claims that it is liable for other taxes for the taxable years 1943 to 1949.
The Tax Court held that Eaton and Daley were not individually subject to tax on the difference between the cost of the 1,437,500 shares of Steep Rock stock and their alleged value. It further held that Premium, an incorporation of Canada, had no permanent establishment in the United States and was, therefore, not subject to tax in the United States by reason of the Tax Convention and Protocol between the two countries.
The issues presented by these cases are primarily factual. At the outset of the trial in the Tax Court, Mr. Kennedy, for the Commissioner, stated (R. 1b-2b).
The facts are extensive, complicated and important to a proper understanding and determination of the issues involved. Judge Van Fossan, of the Tax Court, made an excellent Findings of Fact with which there is little dispute. Only two findings are claimed to be clearly erroneous. These are findings that Eaton was acting in a representative capacity (28 T.C. 127, 133, 134). Other errors complained of are that the trial judge drew erroneous conclusions and inferences from the facts as found.
The facts are, therefore, virtually undisputed. In order to have a clear understanding of the points involved, reference should be made to the Findings of Fact of the Tax Court. They are reported in Consolidated Premium Iron Ores, Ltd. v. Commissioner of Internal Revenue, 28 T. C. 127, 129.
Briefly stated, the facts are as follows:
Cyrus S. Eaton and Wm. R. Daley are citizens of the United States and at times pertinent to these actions had offices in the Cleveland, Ohio, suite of Otis and Co., at 2000 Terminal Tower of that city.
Otis was engaged in and carried on business as an underwriter and distributor of securities, a dealer in securities and an investment company. It had offices throughout the United States. Daley was its president and he and Eaton were substantial stockholders.
Steep Rock Iron Mines Limited was incorporated under the laws of the Province of Ontario on February 24, 1939. It owned about 7000 acres in the Steep Rock Lake area of Ontario, containing large bodies of high grade iron ore. There were three large deposits of ore under the waters of Steep Rock Lake.
Steep Rock's problem was to secure funds for development of the mine which was an undertaking of great magnitude. The officers of Steep Rock desired to secure financing without giving up control of the property.
Discussions of the officers ultimately led to contact with Eaton and Daley as representatives of Otis and Co.
Eaton and Daley became interested and undertook to arrange financing. There were extended negotiations between Eaton and Daley, Steep Rock's officers and various other persons. Several plans were considered and abandoned and finally a loan of $5,000,000 was arranged with Reconstruction Finance Corporation. To supplement this loan Otis purchased from Steep Rock, $2,250,000 of debenture bonds and 562,500 shares of Steep Rock common stock for $2,025,000. These bonds and shares were marketed to the public. This resulted in a very profitable operation for Otis.
The financing was complicated and involved many details. It cannot be briefly summarized and reference is hereby made to the meticulous Findings of Fact made by the trial judge, 28 T.C. 127, 129.
It was at all times contemplated that a corporation would be formed to act as a sales agency for marketing the product of Steep Rock. Premium Iron Ores, Limited, later changed to Consolidated Premium Iron Ores, Limited, a Canadian corporation, was organized for this purpose on November 14, 1942.
On January 15, 1943, Steep Rock and Premium entered into a sales contract. See Findings of Fact, 28 T.C. at page 137. By agreement of May 27, 1944, between Steep Rock and Cleveland-Cliffs, the latter company agreed to purchase substantially all of the ore mined by Steep Rock. The preamble to this agreement recited that Steep Rock had appointed Premium its exclusive sales agent "and as its agent to negotiate this contract;" that "Premium on behalf of Steep Rock has approached Cliffs in connection with" commitments to purchase certain tonnages of ore from Steep Rock and other items.
Two million shares of Steep Rock common stock had been set aside to be used in the financing of the company.
On February 23, 1943. Steep Rock authorized 562,500 of these to be issued to Otis and 1,437,500 to be issued to Premium at a nominal price. These latter ones are the subject of these actions. Some of these 1,437,500 shares were distributed to satisfy claims for participation in the financing arrangements. 28 T.C. 139.
Finally, Eaton and Daley and their families owned substantially all of the stock of Premium.
We are in accord with the findings of the trial judge that Eaton and Daley were acting in a representative capacity and not as individuals in their negotiations concerning the Steep Rock Company and the distribution of its stock. This is a proper inference to be drawn from the evidence and the undisputed facts. We believe these findings were not only not clearly erroneous but were correct.
Daley was president of the Otis company and Eaton was a substantial stockholder of it. They had their offices in the suite occupied by the company. Otis was in the business of marketing securities and of underwriting and financing business projects.
A corporation acts only through its officers, agents and employees. Steep Rock's approach to Eaton and Daley was through Otis. "Promptly thereafter, Sweezey contacted Eaton and discussed the Steep Rock project with him and Daley, as representatives of Otis, and others representing steel companies at a meeting held in Cleveland, Ohio, with the idea of having Otis join Sweezey Securities Limited in some plan to finance the development of the properties of Steep Rock." (Unchallenged Finding, 28 T.C. 131.)
Another unchallenged finding (28 T.C. 132) "Promptly after the termination of the negotiations between Cleveland-Cliffs and Steep Rock, Eaton, at the request of Sweezey, went to Toronto to confer with Hogarth, then president of Steep Rock, and other officers of Steep Rock, and thereafter Eaton discussed the matter with officers of Otis." (Emphasis added.) The marketing of all of the securities for the financing of Steep Rock was done through Otis.
Counsel for the petitioner attach a great deal of importance to the memorandums of Hogarth and Eaton of July 13, and July 20, 1942, and particularly to the one of July 20. These memorandums set forth a procedure for the financing of Steep Rock so that it could get into the production of iron ore.
In the effort to finance Steep Rock, proposals were made and abandoned. The proposals contained in these documents were never fully performed. For instance, $7,500,000 in first mortgage bonds were not issued. Bonds could not be marketed in Canada.
The provision for 1,875,000 shares to be issued on Eaton's order was increased to 2,000,000 shares and as a matter of fact, no shares were ever issued on his order.
It is significant to note that Daley's name is not mentioned in these letters or memorandums.
...
To continue reading
Request your trial
-
Estate of Goodall v. CIR
...Southwest Exploration Co., 350 U.S. 308, 309, footnote 1, 76 S. Ct. 395, 100 L.Ed. 347 (1956); Commissioner of Internal Revenue v. Consolidated Premium Iron Ores, Ltd., 265 F.2d 320 (6 Cir. 1959); Nat Harrison Associates, 42 T.C. 601, 617 (1964) (Commissioner's petition for review by the Fi......
-
CIR v. Spermacet Whaling & Shipping, 13887.
...221 F.2d 227; Consolidated Premium Iron Ores, Ltd. v. Commissioner, 28 T.C. 127, 150, affirmed, without reference to this question, 6 Cir., 265 F.2d 320; European Naval Stores Co. v. Commissioner, 11 T.C. 127, 132; Scottish American Investment Co., Ltd. v. Commissioner, 12 T.C. 49, 54. The ......
-
Piggott's Estate v. CIR
...Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218; Commissioner of Internal Revenue v. Consolidated Premium Iron Ores, Ltd., 265 F.2d 320, 326, C.A. In support of the contention that it was the intent of the decedent that the company own the policy,......
-
Willett v. CIR
...Revenue, 172 F.2d 343. Although the Court reversed the Tax Court it applied the clearly erroneous rule. Commissioner v. Consolidated Premium Iron Ores, Limited, 6 Cir., 265 F.2d 320, 326. Miles-Conley Co. v. Commissioner, 4 Cir., 173 F.2d Counsel for the petitioners contend that the Trial J......
-
Canada's permanent establishment rules threaten U.S. businesses.
...establishment" under the Regulations, the relevant principles are similar to those under the Treaty. (8) 28 T.C. 127 (1957), affirmed, 265 F.2d 320 (6th Cir. (9) The Consolidated Premium Iron Ores case is relevant here only insofar as it has been cited several times in the Canadian case law......