Conhaim Holding Co. v. Willcuts

• Decision Date: 10 August 1927
• Docket Number: No. 1551.,1551.
• Parties: CONHAIM HOLDING CO. v. WILLCUTS, Collector of Internal Revenue.
• Court: U.S. District Court — District of Minnesota

21 F.2d 91 (1927)

CONHAIM HOLDING CO. v. WILLCUTS, Collector of Internal Revenue.

No. 1551.

District Court, D. Minnesota, Third Division.

August 10, 1927.

Benjamin H. Flesher, of Minneapolis, Minn., for plaintiff.

Leland W. Scott, Asst. U. S. Atty., and Ralph S. Scott, Sp. Asst. U. S. Atty., both of Washington, D. C., for defendant.

JOHN B. SANBORN, District Judge.

In December, 1920, the plaintiff, Conhaim Holding Company, was incorporated under the laws of Minnesota. Its main object was to hold and conserve the assets belonging to the estate of Louis Conhaim, deceased, to liquidate them when that could be done advantageously, and to distribute their avails among the stockholders of the corporation. The estate consisted of stocks, leaseholds, timber land, and life insurance renewal commissions. The corporation has maintained an office, but has no employees. It has never dealt in securities. It has never sold the timber land, because no opportunity has arisen to sell it. No income is received from it. The secretary of the corporation receives a salary of $100 a year for his services and is an auditor and accountant. The income of the corporation consists of dividends upon the stocks, renewal commissions upon life insurance written by Louis Conhaim in his lifetime, and rentals from the leaseholds. Numerous loans have been made by the corporation to its stockholders, who — with the exception of a son-in-law and the secretary, who hold qualifying shares — are the heirs of Louis Conhaim. One loan was made to the American Security Company at the request of the son-in-law. The loans were apparently made for the accommodation and benefit of the stockholders, but interest was paid and collected. In some cases, the company has loaned its credit to the stockholders, and in other cases, when in funds, has permitted them to have the use of funds, paying the current rate of interest therefor. No distribution of assets or income has been made, and the carrying charges of the property require most of the income.

Revenue Act 1924, § 700 (a) (1), being 26 USCA § 223 (1), Comp. St. § 5980n, provides that "every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1 for each $1,000 of so much of the fair average value of its capital stock for the preceding year ending June 30 as is in excess of $5,000." The plaintiff paid this excise tax for 1921, 1922, and 1923, amounting in all to $156, and then decided that it was not doing business within the meaning of the Revenue Act, and has brought this suit to recover what it has paid to the government.

The question is whether the corporation was required to pay the tax. The powers of the corporation, as enumerated in its articles, are as follows:

"To hold, own, acquire, use, manage, develop, improve, lease, buy, sell, transfer, convey, deal in, encumber, pledge, mortgage, assign, exchange and otherwise dispose of any and all kinds of property, real, personal and mixed, and wheresoever situated, including lands, and any interest therein, chattels, bonds, stocks and other securities and evidences of indebtedness, whether corporate or not; to loan and borrow money, either with or without security, but not to engage in a banking business; to purchase or otherwise acquire, hold and reissue, subject to the provisions of law, the shares of its own capital stock; to acquire, undertake, carry on and dispose of all or any part of the business, assets, liabilities and securities of any person, partnership, association or corporation, and to become surety or guarantor for the debts and obligations of the same, and to do any and all things essential, necessary or convenient or advisable in the conduct of such business."

It has been held that, in determining whether a corporation is obliged to pay the tax, the question is what the corporation is doing, and not what it could do. United States v. Emery-Bird-Thayer Realty Co., 237 U. S. 28, 32, 35 S. Ct. 499, 59 L. Ed. 825. In Von Baumbach v. Sargent Land Co., 242 U. S. 503, 516, 37 S. Ct. 201, 204 (61 L. Ed. 460), the Supreme Court said:

"It is evident, from what this court has said in dealing with the former cases, that the decision in each instance must depend upon the particular facts before the court. The fair test to be derived from a consideration of all of them is between a corporation which has reduced its activities to the owning and holding of property and the distribution of its avails, and doing only the acts necessary to continue that status, and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain and such activities as are essential to those purposes."

In the case of Flint v. Stone Tracy Co., 220 U. S. 107, 171, 31 S. Ct. 342, 357 (55 L. Ed. 389, Ann. Cas. 1912B, 1312) the court said: "`Business' is a very comprehensive term, and embraces everything about which a person can be employed. Black's Law Dict. 158, citing People ex rel. Hoyt v. Tax Commissioners, 23 N. Y. 242, 244. `That which occupies the time, attention, and labor of men for the purpose...