Commissioner of Internal Revenue v. Crescent Leather Co., 2389.
| Decision Date | 17 May 1930 |
| Docket Number | No. 2389.,2389. |
| Parties | COMMISSIONER OF INTERNAL REVENUE v. CRESCENT LEATHER CO. |
| Court | U.S. Court of Appeals — First Circuit |
John H. McEvers, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key and J. Louis Monarch, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Percy S. Crewe, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for the Commissioner of Internal Revenue.
Allison L. Newton, of Boston, Mass., for Crescent Leather Co.
Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
The question involved in this appeal is whether the Crescent Leather Company, a Massachusetts corporation, and the Buckman Tanning Company, also a local corporation, were entitled to be affiliated for the tax year 1920 within the meaning of the Revenue Act of 1918, c. 18, § 240 (b), 40 Stat. 1057, 1082. If they were not so entitled, the Crescent Leather Company was subject to a deficiency tax of $60,453.65. If they were so entitled, the Buckman Tanning Company having sustained a loss that year of $118,408.63, the deficiency tax would be $4,733.46. The Commissioner held that the two corporations were not entitled to be affiliated, and assessed a deficiency tax in the sum of $60,453.65; but, on appeal to the Board of Tax Appeals, that Board held that the two corporations were entitled to be affiliated, and ordered a deficiency of $4,773.46; and the Commissioner appealed to this court.
In his assignments of error, the Commissioner complains that the Board erred (1) as a matter of law in holding that the two corporations were affiliated within the meaning of section 240 of the Revenue Act of 1918; (2) in finding as a fact that the two corporations were affiliated within the meaning of that section; (3) in finding as a fact that Kaplan and the Crescent Leather Company controlled the stock of the Buckman Tanning Company that stood in the name of Alvah Buckman; (4), (5), and (6) in that its finding that the stock of the Buckman Tanning Company that stood in the name of Alvah Buckman was controlled by Kaplan and the Crescent Leather Company, or by Kaplan, or by the Crescent Leather Company, is not supported by the evidence; (7) in determining the deficiency against the Crescent Leather Company to be $4,733.46; and (8) in not determining the deficiency against the Crescent Leather Company to be $60,453.65.
The Board of Tax Appeals found that during the years 1919 and 1920 Kaplan owned 99 per cent. of the stock of the Crescent Leather Company; that in 1919 that company had hides which it desired to have tanned by the Buckman Leather Company; that this company was in financial difficulties, and it was feared that it might be unable to complete the tanning of the hides; that thereupon Kaplan entered into an arrangement with Buckman, who owned the Buckman Leather Company, whereby Kaplan paid the debts of the Buckman Leather Company up to the first mortgage; that then a new company, the Buckman Tanning Company, was organized, which took over the assets of the Buckman Leather Company; that the entire stock of the new company was issued to Kaplan and Buckman in equal amounts; that Kaplan loaned the new company about $175,000, and in addition advanced money to Buckman for his own private use, as he was without funds; that, when the new company was organized, several contracts were executed; that the first contract was between Kaplan and the new company, and provided that Kaplan would be employed as its general manager for five years from August 1, 1919; that no act should be done by the new company affecting its general policy except with the approval of Kaplan or the Crescent Leather Company, but that neither should determine "who shall be the officers of the said corporation, nor matters connected with or affecting the contracts of said corporation with the Crescent Leather Company, nor the matter of terminating the contract of Alvah Buckman, nor defining the duties of said Buckman"; that the second contract provided that, in the event of the death or incapacity of Kaplan, the Crescent Leather Company should determine the general policy of the new company for a like period of time as was given to Kaplan in the first contract, and subject to the same exceptions; that the third agreement was between the new company and Buckman, and provided that he should be employed for five years from August 1, 1919, as manager of the tanning and finishing at the plant, with no authority to buy or sell hides, skins, or leather, or to make agreements for tanning or finishing, except with the approval of Kaplan or his successors in interest; that a fourth contract, between the new company and the Crescent Leather Company, was made, which covered a period of five years from August 1, 1919, and provided for the work to be performed by the new company for the Crescent Leather Company and the price to be paid therefor.
It was also found that on August 1, 1919,...
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