GRAVOIS PLANING MILL CO. v. Commissioner
| Decision Date | 09 June 1960 |
| Docket Number | 67451.,Docket No. 67450 |
| Citation | 1960 TC Memo 122,19 TCM (CCH) 639 |
| Parties | Gravois Planing Mill Company v. Commissioner. Charles A. and Florence Beckemeier v. Commissioner. |
| Court | U.S. Tax Court |
Robert H. Batts, Esq., for the petitioners. Robert A. Roberts, Esq., for the respondent.
Memorandum Findings of Fact and Opinion
The respondent determined deficiencies in income tax for the taxable year 1954 as follows:
Docket Deficiency in
No. Petitioner Income Tax
67450 Gravois Planing Mill Company.... $1,410.79
67451 Charles A. and Florence
Beckemeier..................... 1,410.89
The issue as to the corporate petitioner is whether it is entitled to deduct legal fees and title expense of $2,510.05 and $203, respectively, as ordinary and necessary business expenses. The issues as to the individual petitioner Charles A. Beckemeier are (1) the proper value, to be used in computing gain or loss, for a paid-up life insurance policy received by him from the corporation as part payment for his stock, and (2) whether he in January and February 1954 had such an interest in buildings received in part payment for his stock as entitles him to depreciation deductions for those months.
Some of the facts are stipulated and are incorporated herein by this reference.
The petitioner Gravois Planing Mill Company, hereinafter referred to as the corporation, was organized under the laws of the State of Missouri on June 13, 1893, with its principal place of business in St. Louis, Missouri. It filed its Federal income tax return for the calendar year 1954 with the district director of internal revenue, St. Louis, Missouri.
The petitioners, Charles A. and Florence Beckemeier, were husband and wife and resided in St. Louis County, Missouri, during the taxable year 1954. They filed a joint Federal income tax return for the calendar year 1954 with the district director of internal revenue, St. Louis, Missouri.
The petitioner Charles A. Beckemeier, hereinafter sometimes referred to as Beckemeier, was born September 13, 1886. He was a stockholder and officer of the corporation during the year 1953 and for many years prior thereto, having first acquired stock thereof in 1913. He was its president during the year 1953.
During the years 1945 to 1953, inclusive, and as of January 1, 1954, the corporation's issued and outstanding stock was owned as follows:
Shares
Charles A. Beckemeier...... 200
Hobart C. Diringer......... 75
M. R. Landgraf............. 50
R. C. Goetting............. 75
___
Total.................... 400
In 1945 the corporation and its stockholders entered into an agreement with respect to the sale by any of the stockholders of their stock. Such agreement was renewed and amended from time to time, but essentially the same provisions prevailed at all times until and including the year in question. The agreement recited the desire of the stockholders to provide against the stock falling into the hands of others inimical to the interest of the corporation and the existing stockholders and provided, therefore, that no stockholder should sell his stock without first giving the corporation the opportunity to purchase it. A stockholder desiring to sell his stock was required to give written notice to the then secretary of the corporation and the corporation had 15 days within which to accept or reject the offer to sell. It was provided that annually, within 90 days after the close of any fiscal year of the corporation, the corporation and the stockholders should fix a price for the stock, to be effective throughout the ensuing fiscal period. No formula for fixing the price was provided in the agreement. In the event of the acceptance by the corporation of any offer to sell, the price to be paid was to be the price so fixed, adjusted, however, as of the close of the month next preceding the date of the notice of intention to sell, by taking into account the net earnings or losses and the dividends If for any year a price was not so fixed, it was provided that the last preceding price so fixed should prevail. The corporation was required to pay the price to the stockholder in cash within 90 days after the date of receipt of the offer to sell, and it was provided that the stock should be transferred on the books of the corporation at the time of payment. If the corporation should fail to accept the offer it was required that the stock be offered to the remaining stockholders. In the event of the death of a stockholder the corporation was required to purchase the stock of the deceased stockholder within 90 days after death.
For the purposes of such agreement, the price was fixed by the stockholders for each of the years 1945 through 1952, the last price disclosed by the record having been fixed on February 14, 1952, at $1,000 per share, except that in the event of the death of Beckemeier the price for his stock should be $900 per share.
In September 1953, Beckemeier orally advised Diringer, secretary of the corporation, that he desired to sell his stock and retire from the business, and told Diringer that he would sell his stock for $1,000 net per share. Thereafter on several occasions Beckemeier discussed the sale of his stock to the corporation with the other individual stockholders and officers. It was also contemplated that some of his stock might be sold to another stockholder, Landgraf, in order that Landgraf might have the same number of shares as the other stockholders, Diringer and Goetting. At some time prior to December 31, 1953, the other stockholders informally agreed to payment by the corporation to Beckemeier of $1,000 net per share for his stock, and that the stock would be transferred to the corporation on December 31, 1953 or January 1, 1954. The net price of $1,000 per share was based upon the last price established pursuant to the 1945 agreement, or was determined in approximately the same way, except that no adjustment was made for the profit or loss of the corporation for the year 1953.
However, the corporation did not have sufficient cash available to pay for the stock, and discussions were had as to how payment would be made. Prior to December 31, 1953, Beckemeier advised the other stockholders that he would accept the land and buildings owned by the corporation in part payment for his shares, the remainder to be paid in cash, and the stockholders agreed to this. The corporation was the owner and beneficiary of a fully paid up life insurance policy in the amount of $25,000 on the life of Beckemeier, and the stockholders and officers had intended to surrender the policy and use the cash proceeds to pay Beckemeier. However, Beckemeier offered to take an assignment of the policy in lieu of cash to the extent of the cash surrender value, and suggested writing to the insurance company to ascertain such cash surrender value. The other stockholders agreed. As of January 1, 1954, the value of the land and buildings had not been definitely agreed upon, although the buildings were valued tentatively at $95,000, and the cash surrender value of the insurance policy had not been ascertained. An understanding had been reached that Beckemeier would be removed from the payroll of the corporation at December 31, 1953, and thereafter he received no further salary or compensation from the corporation.
On January 2, 1954, Beckemeier sold 25 shares of his stock to Landgraf for $1,000 per share.
A regular meeting of the stockholders of the corporation was held on January 11, 1954. Minutes of the meeting, as revised, recite that Beckemeier was a stockholder, and contain the following:
The minutes of a special meeting of the stockholders of the corporation held January 11, 1954, state that it was resolved that the capital stock of the corporation should be decreased from 400 shares, par value $100 each, to 225 shares, par value $100 each.
On January 25, 1954, an independent appraiser made an appraisal of the land and buildings of...
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