Edwards v. Chile Copper Co

• Decision Date: 22 March 1926
• Docket Number: No. 375,375
• Citation: 270 U.S. 452,46 S.Ct. 345,70 L.Ed. 678
• Parties: EDWARDS, Collector of Internal Revenue, v. CHILE COPPER CO
• Court: U.S. Supreme Court

270 U.S. 452

46 S.Ct. 345

70 L.Ed. 678

EDWARDS, Collector of Internal Revenue,

v CHILE COPPER CO.

No. 375.

Argued March 10, 11, 1926.

Decided March 22, 1926.

Mrs. Mabel Walker Willebrandt, Asst. Atty. Gen., for petitioner.

Mr. Arthur A. Ballantine, of New York City, for respondent.

Mr. Justice HOLMES delivered the opinion of the Court.

This is a suit to recover the amount of taxes alleged to have been erroneously collected for the years 1917 to 1920. The taxes were levied under the Acts of September 8, 1916, c. 463, § 407, 39 Stat. 756, 789 (Comp. St. § 5980a) and of February 24, 1919, c. 18, § 1000, (a)(1) and (c), 40 Stat. 1057, 1126 (Comp. St. Ann. Supp. 1919, § 5980n). Both statutes impose upon domestic corporations organized for profit a tax 'with respect to the carrying on or doing business,' at certain rates for the fair value of the capital stock, and both exempt such corporations 'not engaged in business' during the preceding taxable year. The question is whether the plaintiff, the Chile Copper Company, brings itself within this exemption. The facts are set forth in the complaint and the case was heard upon a motion to dismiss. In the District Court judgment was given for the plaintiff Chile Copper Co. v. Edwards, 294 F. 581. The judgment was affirmed on the opinion below by the Circuit Court of Appeals. 5 F.(2d) 1014. A writ of certiorari was granted by this Court. 45 S. Ct. 637, 268 U. S. 685, 69 L. Ed. 1156.

The facts are somewhat peculiar. The Chile Exploration Company, a New Jersey corporation, owned mines in Chile and needed to borrow large sums of money in order to develop them. By the laws of Chile it could not mortgage its mines effectively and therefore could not give security directly for bonds. To meet the difficulty the Chile Copper Company was organized in Delaware for the purpose of holding the capital stock of the Chile Exploration Company, issuing bonds secured by a pledge of the stock, and furnishing the proceeds from time to time to the Exploration Company to enable the latter to go on with its work. The purpose was carried out. On April 1, 1917, the plaintiff authorized the issue of collateral trust bonds for $100,000,000 to be secured by a pledge of all the above-mentioned stock. During the six months ending on June 30, 1917, it executed an agreement with underwriters and issued $35,000,000 of the bonds, received payments from subscribers, which were deposited in a special account with the Guaranty Trust Company of New York, paid the expenses of the issue from the special account and made provision for the accrued interest payable upon the bonds. It also paid the interest on $15,000,000 of bonds outstanding under an earlier pledge. During the same time stockholders' and directors' meetings were held, directors and officers were chosen, corporate books and accounting records were kept, and such other acts were done and expenses paid as were necessary to keep up the corporate existence. An office was maintained for the activities described. The plaintiff owned and voted on the stock of the Exploration Company, and elected its directors, and made advances to it from the proceeds of the bonds issued in 1917, the Guaranty Trust Company being directed after payment of certain matters not to pay checks drawn upon the special account unless accompanied by a letter from the plaintiff stating that the proceeds would be used for specified purposes connected with the development of the mines. The plaintiff agreed to furnish and did furnish the Guaranty Company statements showing that the proceeds had been so applied. During the six months mentioned the sum of...