Gravois Planing Mill Company v. CIR
| Citation | 299 F.2d 199 |
| Decision Date | 14 February 1962 |
| Docket Number | No. 16646.,16646. |
| Parties | GRAVOIS PLANING MILL COMPANY, Charles A. and Florence Beckemeier, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
Robert H. Batts, St. Louis, Mo., Rassieur, Long & Yawitz, St. Louis, Mo., on the brief, for petitioners.
Harold M. Seidel, Dept. of Justice, Washington, D. C., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson and
Robert N. Anderson, Attorney, Dept. of Justice, Washington, D. C., on the brief, for respondent.
Before VOGEL and BLACKMUN, Circuit Judges, and BECK, District Judge.
This petition for a review of decisions of the Tax Court concerns deficiences determined in the respective 1954 income taxes of Gravois Planing Mill Company ("Gravois"), the corporate taxpayer, and Charles A. Beckemeier and his wife, the individual joint-return taxpayers. The two cases were consolidated for trial. The Tax Court's decisions were in favor of the Commissioner. T.C. Memo. 1960-122.
The controversy arises out of Beckemeier's disposition of his Gravois shares to the corporation itself. Specifically the issues are:
1. Are attorneys' fees and other expenses incurred and paid by Gravois in 1954 in connection with the acquisition of its own stock from Beckemeier deductible as "ordinary and necessary expenses" of its business within the meaning of § 162(a) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 162(a)?1
2. Is Beckemeier entitled2 to a deduction for depreciation of improvements on real estate (conveyed to him by Gravois as part of the consideration for his shares) for the entire taxable year 1954 or for only the period after March 2, 1954?
3. Is the "fair market value",3 for Beckemeier's capital gain purposes,4 of a paid-up insurance policy on Beckemeier's life (also transferred to him by Gravois in 1954 as part of the consideration for his shares) the then replacement value thereof or its value as negotiated by Beckemeier and the corporation?
The first issue thus concerns the corporation; the other two concern Beckemeier.
The facts are not in basic dispute and many of them have been admitted by the pleadings or stipulated. Because the Tax Court opinion is not officially reported, we necessarily review those facts in some detail:
Gravois is a Missouri corporation organized in 1893. Beckemeier was born in 1886 and thus was 67 years of age at the beginning of 1954, the taxable year in question. He first acquired stock in Gravois in 1913 and was an officer of the corporation for many years prior to 1954. From 1945 to 1953, inclusive, and as of January 1, 1954, Gravois had outstanding 400 shares of capital stock held as follows: Charles A. Beckemeier, 200; H. C. Diringer, 75; M. R. Landgraf, 50; R. C. Goetting, 75. All the shareholders were active in the business. Diringer, Landgraf and Goetting were younger than Beckemeier and had come to work with him there after they finished high school. The outstanding shares were subject to a buy-and-sell agreement, of the usual kind, entered into by the shareholders and the corporation in 1945 and amended from time to time. This recited that the parties desired to provide against any of the Gravois stock falling into the hands of persons inimical to the interests of the corporation and of its shareholders. The shareholders agreed that if any one of them wished to transfer any of his shares, the intended seller must give the first refusal to the corporation and the next to the other shareholders. Similar provisions covered the exigencies of death, bankruptcy, and the like. The parties agreed to fix annually a price to be effective under the agreement for the ensuing year with adjustments based on net earnings or net losses for any partial year; if an annual determination was not so made, the last preceding price so fixed was to govern, with adjustments accordingly for the interim. No price fixing formula, however, was provided. Any purchase under this agreement was to be for cash. The parties fixed the price annually through 1951; in February 1952 it was set at $1,000 a share except that in the event of Beckemeier's death the price for his stock was to be $900 per share.
In September 1953 Beckemeier decided to retire from the business. He mentioned this initially to Diringer, who was secretary and later president of the corporation; there were various discussions with the other shareholders, and among them all, during the fall and early winter of 1953. Beckemeier during the latter part of that year also discussed his proposed retirement with Charles D. Long, an attorney. Beckemeier told Diringer that he would sell his stock for $1,000 net per share. Landgraf, who, as noted above, then owned only 50 shares as compared with Diringer's and Goetting's 75 shares each, approached Beckemeier about purchasing 25 shares so that he, too, would have 75. Prior to December 31, 1953, all the shareholders agreed informally (a) to the sale by Beckemeier of 25 shares to Landgraf and (b) to the payment by the corporation to Beckemeier of $1,000 net per share for his remaining 175 shares. This was to be as of December 31, 1953, or January 1, 1954.
The corporation, however, did not possess sufficient cash to cover the purchase price of the 175 shares. Still before December 31, 1953, Beckemeier advised the other shareholders that he would accept land and its improvements owned by the corporation in part payment for those shares. The others agreed. By January 1, 1954, the transfer value of the improvements had not finally been agreed upon; the parties, nevertheless, tentatively valued them at $95,000.
The corporation was also the owner and beneficiary of a paid up life insurance policy on Beckemeier's life. This was carried in its books at cash surrender value. The officers and shareholders intended to surrender this policy and use its cash proceeds for the payment to Beckemeier. During the 1953 negotiations, however, Beckemeier offered to take the policy in lieu of cash to the extent of its cash surrender value and suggested writing the insurance company to ascertain that value. The other shareholders agreed to this.
Thereafter, the following events took place chronologically:
1. December 31, 1953. Beckemeier went off the Gravois payroll. He received no further salary or other compensation from the corporation after this date.
2. January 2, 1954. Beckemeier sold 25 shares of his Gravois stock to Landgraf for $25,000.
3. January 4, 1954. The corporation retained Mr. Long's law firm.
4. January 11, 1954. A regular meeting of the shareholders of the corporation took place. The minutes of that meeting recite that Beckemeier, Goetting, Diringer and Landgraf "holding and owning all of the shares of the capital stock of the corporation, were present in person and participated in the meeting", and go on to read as set forth in the margin.5 Beckemeier was not reelected as a director at that meeting.
5. January 11, 1954. After the regular meeting of the shareholders a special shareholders' meeting was held to consider the proposal, made by the directors, for a decrease in the corporation's capital stock. All shareholders including Beckemeier were present. Resolutions were adopted decreasing the corporation's capital stock from 400 to 225 shares and authorizing the filing of an appropriate amendment of the articles with the Missouri Secretary of State.
6. January 25, 1954. Beckemeier and Gravois finally agreed, apparently as a result of an independent appraisal, that the improvements were to be applied toward payment of the stock at $96,000 rather than $95,000.
7. January 27, 1954. The insurance company wrote Gravois that the cash surrender value of the policy on Beckemeier's life, with accrued dividends, was $17,915.73 as of December 28, 1953.
8. March 2, 1954. A special meeting of the directors of Gravois took place. We set forth the minutes of that meeting, in order to save space, in the margin.6 The form of the ten-year lease from Beckemeier to Gravois was presented and approved. Resolutions were also adopted authorizing the corporation to borrow $15,000 each from Diringer, Goetting and Landgraf against the corporation's notes.
9. March 2, 1954. A warranty deed from Gravois to Beckemeier for the improved real estate was executed and delivered. It recited that it was made and entered into as of January 1, 1954.
10. March 2, 1954. The lease from Gravois to Beckemeier of the same improved real estate was executed. It covered the term from January 1, 1954, through December 31, 1963, and recited that the lease began "as of the 1st day of January, 1954". The monthly rental it called for was paid by Gravois to Beckemeier beginning January 1, 1954.
11. March 2, 1954. Beckemeier formally transferred his 175 shares of Gravois stock to the corporation. The shares were cancelled on the corporation's stock records on this date.
12. March 3, 1954. An amendment of the corporation's articles was filed with the Missouri Secretary of State as required by V.A.M.S. § 351.195.7 This had to do with the reduction in the stated capital of the corporation in line with the resolution adopted by the shareholders on January 11, 1954.
13. March 18, 1954. The formal assignment of the life insurance policy from Gravois to Beckemeier was executed.
14. April 2, 1954. Gravois paid $203 to a title insurance company for a certificate of title on the improved real estate transferred to Beckemeier.
15. June 15, 1954. The firm of Rassieur, Long & Yawitz submitted its bill to Gravois for services over the period from January 4, 1954, to March 2, 1954, in the amount of $2,500, plus disbursements of $10.05. The latter consisted of fees for filing the Certificate of Amendment with the Secretary of State and with the City Recorder and for recording the warranty deed. The statement is detailed and describes chronologically services consisting of attendance at...
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