Growers Credit Corp. v. Comm'r of Internal Revenue, Docket No. 60562.
| Decision Date | 29 February 1960 |
| Docket Number | Docket No. 60562. |
| Citation | 33 T.C. 981 |
| Parties | GROWERS CREDIT CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
F. A. LeSourd, Esq., and Griffith Way, Esq., for the petitioner.
Wilford H. Payne, Esq., for the respondent.
1. Corporation organized to finance crop operations of members and other fruit producers in area, held, not exempt under section 101(13), I.R.C. 1939.
2. Deposits of 5 cents per box of fruit sold by borrower-stockholders to indemnify lending corporation against credit and operating losses, held, not taxable income to corporation in year of receipt.
Respondent determined deficiencies in petitioner's income taxes and a 5 per cent negligence addition to tax under section 293 a), I.R.C. 1939, as follows:
+--------------------------------------------+
¦Fiscal year ended¦Deficiency¦Addition to ¦
+-----------------+----------+---------------¦
¦May 31— ¦ ¦tax, sec.293(a)¦
+-----------------+----------+---------------¦
¦1948 ¦$52,914.93¦ ¦
+-----------------+----------+---------------¦
¦1949 ¦30,746.29 ¦ ¦
+-----------------+----------+---------------¦
¦1950 ¦38,507.96 ¦ ¦
+-----------------+----------+---------------¦
¦1951 ¦44,702.07 ¦$2,235.10 ¦
+--------------------------------------------+
The issues for decision are whether petitioner is exempt from tax under section 101(13), I.R.C. 1939, and if not, whether deposits of 5 cents per box of fruit sold by its borrower-stockholders terms of the loan agreement to indemnify petitioner against credit and operating losses are taxable income to petitioner in the year of receipt. It becomes unnecessary for us to pass on other issues raised in the pleadings because of agreements between the parties and as a result of our conclusions on the above two issues. Respondent waived the addition to tax on brief.
The stipulation of facts filed by the parties in incorporated herein by this reference.
Petitioner, a corporation with its principal offices in Wenatchee, Washington, filed its income tax returns for the fiscal years 1948 through 1951 with the district director of internal revenue at Tacoma, Washington.
Wenatchee is the center of a large fruit growing area known as the North-Central Washington fruit area consisting of Wenatchee and Okanogan valleys.
The production of fruit involves the use of substantial funds every year for spraying, fertilizing, boxing, labor, and other necessary expenses for the growing, packing, and marketing of the crop.
During the past 30 years the growers in the North-Central Washington fruit area have had difficulty in securing the necessary funds from private sources. It was particularly difficult for fruitgrowers to finance their production and marketing operations during the depression years of 1930 to 1940. As a result, in 1940 the North-Central Washington area was declared a distress area by the Federal Government. The same year the Department of Agriculture sent a representative to investigate the credit situation. The Farm Credit Administration held meetings with farmers and growers in the area in order to develop possible solutions for the credit problems. A group representing land users in the area, known as the Land Use Planning Committee, hereafter referred to as LUPC, took a prominent part in the discussions that followed. The LUPC was a voluntary movement. It had no funds, offices, nor place of business. Any fruitgrower was eligible to belong. It served in an advisory capacity.
The organization of the LUPC among the growers was encouraged by the Department of Agriculture. Each community had its own committee and every grower in the community had the right to vote for members of this committee. These community committees in turn elected representatives to a county LUPC. The county committee elected representatives to the district LUPC covering the North-Central Washington fruit area. Representatives of a number of agencies in the Department of Agriculture sat with these committees.
A program was developed by the district LUPC for meeting the various problems of the fruitgrowers, of which financing and supply were the principal ones. The district LUPC recommended the organization of a grower-owned finance corporation and the use of a local supply cooperative. These recommendations were approved by the Secretary of Agriculture. The financing plan included immediate financing by the Regional Agriculture Credit Corporation, hereafter referred to as RACC, a Federal agency. It was announced that the RACC would make loans to growers for a period of approximately 5 years during which time there would be organized a grower-owned and -controlled credit corporation which would thereafter provide for the credit needs of fruitgrowers.
The RACC began making loans to the fruitgrowers in the area in 1941. As a condition of the loans, approval of each grower by the LUPC was required. It was also suggested that the money advanced for supplies be spent through a warehouse that was cooperating with the LUPC.
RACC required that the borrowers deposit 2 cents per box of fruit into a reserve fund, and RACC deducted 2 cents per box from the fruit checks which the growers received upon the sale of their fruit and which were made payable jointly to the growers and to RACC by the warehouse selling the fruit. The amounts deducted were credited to the growers on the books of RACC. These funds were remitted by the RACC to the United States Treasury where they were invested in Government bonds. RACC had the right to charge against this reserve fund any losses incurred by it in making loans in the North-Central Washington fruit area. The growers were told by the official LUPC members that the purpose of this fund was ‘to set aside two cents per box to build up individual grower reserves.’
When RACC ceased its lending operations in 1945, all of the deposits in the reserve fund were returned to the grower-depositors. No losses were charged against the reserve fund since the few credit losses that had occurred were met by another source of funds.
The LUPC had a supply program as well as a financing program. It recommended the use of a wholesale purchasing cooperative to supply the local cooperative units. Northwest Wholesale, Inc., hereafter referred to as Northwest, a corporation which had been organized in 1937, was selected by RACC, upon the recommendation of LUPC, as the principal purchasing agent for supplies and materials.
Only organized cooperatives could deal directly with Northwest and become members of that organization. Individuals could not buy directly from or become members of Northwest, but bought their supplies through the organized cooperatives. Northwest enlarged its accounts and increased its membership in 1941 and 1942. A letter was issued ruling that it was an exempt cooperative under the income tax laws beginning with its fiscal year 1947.
After RACC started lending in 1941, steps were taken by the district LUPC and RACC to organize a grower-owned credit corporation. The growers were polled as to what type of organization they desired and they voted for an organization like RACC. Articles of incorporation, bylaws, and rules and regulations were drawn up under the guidance of the district LUPC, and the articles of incorporation of petitioner were filed with the secretary of state for the State of Washington on December 7, 1944.
The incorporators of petitioner were five fruitgrowers of the North-Central Washington area. Four of the five were voting members of cooperatives which were in turn members of Northwest, and the fifth was a voting member of an exempt farm cooperative which, while not then a member of Northwest, did later become a member of Northwest.
Petitioner was organized under the Uniform Business Corporation Act of the State of Washington for a term of 50 years. The objectives and purposes for which the corporation was formed are stated in article 3 of its articles of incorporation as follows:
SECTION 1. To advance and lend money to and/or furnish credit facilities for persons, firms or corporations engaged in the production and/or marketing of horticultural and agricultural products including livestock, and associations of persons, firms or corporations so engaged; to borrow money and issue bonds, notes or other obligations therefor and to secure the same by pledge, mortgage or trust deed on the whole or any part of the property of this corporation, or otherwise; to buy, sell, discount or otherwise deal in notes and other evidences of debt; to endorse and/or give any guaranty for the payment of any such notes or other obligations issued or acquired in conducting its business; to pledge its assets, for accommodation or otherwise, in furtherance of its business; and to have and exercise such other powers as may be necessary and incident to the specific powers hereinbefore expressed; and in addition thereto to have all the general powers granted to corporations by virtue of laws of the State of Washington.
SECTION 2. To buy or otherwise to acquire and to own and operate, mortgage, lease, sell or otherwise dispose of any and all kinds of property, real, personal or mixed, or any interest therein, to any extent, and to contract for the purchase, sale, disposal, lease or rental of any such property, for the purpose of furthering any of the business of this corporation. To hold, purchase or otherwise acquire, or to be interested in, and to sell, assign, pledge or otherwise dispose of, shares of the capital stock, bonds or other evidences of debt issued or created by this or any other corporation, whether foreign or domestic and whether now or hereafter organized; and while the holder of any such shares of stock to exercise all the rights and privileges of ownership, including the right to vote...
To continue reading
Request your trial
-
Concord Village, Inc. v. Comm'r of Internal Revenue, Docket No. 2778-70.
...any accrual period. See Angelus Funeral Home, 47 T.C. 391, 398 (1967), affd. 407 F.2d 210 (9th Cir. 1969). Compare Growers Credit Corp., 33 T.C. 981, 997 (1960), where we allowed the taxpayer cooperative to exclude similar funds from income because under the circumstances of that case we fo......
-
Colonial Wholesale Beverage Corp. v. Commissioner, Docket No. 41859-86.
...531 (1954); Bituminous Casualty Corp. v. Commissioner Dec. 31,031, 57 T.C. 58, 90 (1971). See generally Growers Credit Corp. v. Commissioner Dec. 24,070, 33 T.C. 981, 996 (1960). If the deposits must be turned over to the Commonwealth in some later year, petitioner may be able to take a cor......
-
City Gas Co. of Florida v. C. I. R.
...money. Mantell v. Commissioner, 17 T.C. at 1148; Clinton Hotel Realty Corp. v. Commissioner, 128 F.2d at 969; Growers Credit Corp. v. Commissioner, 33 T.C. 981, 996-97 (1960). An example of such a case would be where a lessor requires a lessee to deposit a sum to secure against damage to th......
-
Schochet v. Commissioner
...74 T.C. 386 (1980), on appeal (5th Cir., Oct. 24, 1980) (amounts received as customer security deposits); Growers Credit Corp. v. Commissioner Dec. 24,070, 33 T.C. 981 (1960) (payments from stockholders to indemnify against credit and operating Respondent's argument that petitioner cannot b......