Halliburton v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 36413
| Decision Date | 30 March 1932 |
| Docket Number | 36414.,Docket No. 36413 |
| Citation | 25 BTA 1045 |
| Parties | ERLE P. HALLIBURTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. VIDA C. HALLIBURTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Ben F. Saye, Esq., and C. F. Miller, Esq., for the petitioners.
Frank B. Schlosser, Esq., for the respondent.
The respondent asserts deficiencies in income tax for the year 1924 against Erle P. Halliburton and Vida C. Halliburton in the respective amounts of $23,946.10 and $21,649.89. Petitioners allege that respondent erred in holding that the members of a partnership owned in equal parts by them did not control 80 per cent or more of the stock of a successor corporation immediately after the organization thereof. As an alternative issue, petitioners claim that the provisions of section 208 of the Revenue Act of 1924 should be applied in the computation of their taxes for the taxable year. The two proceedings have been consolidated for hearing.
FINDINGS OF FACT.
The petitioners are individuals now residing at Los Angeles, California. In the taxable year they were equal owners of a partnership known as E. P. Halliburton Oil Well Cementing Company, with its principal place of business at Duncan, Oklahoma.
The E. P. Halliburton Oil Well Cementing Company, hereinafter called the partnership, was established in 1920 and until July 1, 1924, profitably operated the business of cementing oil wells by use of a process patented by Erle P. Halliburton on March 1, 1921. It used several patents, one patent license, all the equipment necessary to its business, certain real estate, supplies and accounts receivable.
On June 19, 1924, the petitioners, as parties of the first part, entered into a written contract, hereinafter called the promoter's agreement, with seven certain oil companies as parties of the second part, which provided for the organization of a corporation under the laws of Delaware, to be known as the Halliburton Oil Well Cementing Company, hereinafter called the corporation, with authorized capital stock of the par value of $350,000, divided into shares of $100 each. Under the terms of the contract the parties of the first and second parts agreed to subscribe and pay for 1,780 and 1,300 shares of stock of the corporation, respectively. The remainder of the authorized shares was to remain in the treasury of the corporation for sale to the public.
The promoter's agreement provided that the board of directors should be made up of seven persons, three to be selected by the stock held by parties of the first part, three by the stock held by parties of the second part, and one to be chosen by Erle P. Halliburton and the second parties or by the president of a trustee which was to hold 480 shares of the corporation's stock to be paid for the partnership assets on July 12, 1924. It also provided that Erle P. Halliburton should be president and general manager of the corporation, at a salary of $15,000 per annum; that H. C. Gloeckler, a representative of the parties of the second part, should be vice president on a salary of $4,200 per annum; and that a secretary-treasurer, to be selected by the parties of the second part, should receive a salary of $4,200 per annum.
On July 12, 1924, a meeting of the board of directors attended by six members thereof was held. At this meeting the certificate of incorporation and the by-laws adopted at the incorporator's meeting held at Wilmington, Delaware, on July 1, 1924, were duly ratified and adopted and the persons so designated in the promoter's agreement were elected to the respective offices of president, vice president and secretary-treasurer at the salaries specified in such agreement.
The parties of the first part, the petitioners, paid for their stock in the corporation in conformity with the terms of the promoter's agreement by delivering to it the good will of the partnership, Patents Nos. 1,369,781 and 1,486,883, a license to use Patent No. 1,101,484, owned by a competing concern, and a mixed body of partnership assets of character, cost and value, as follows:
Profit and loss from sale, on July 1, 1924, of assets and miscellaneous investments
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| | | Depreciation | | |
Description | Date of | Cost | based | Adjusted | Sale price | Profit or
| purchase | | on cost | cost | | loss
------------------------------------|-----------|------------|--------------|------------|------------|------------
Autos _____________________________ | X-X-XX-XX | $12.660.88 | $2,968.55 | $9.692.33 | |
Trucks ____________________________ | X-X-XX-XX | 32,435.20 | 13,438.17 | 18,997.03 | |
Pumps _____________________________ | X-X-XX-XX | 17,894.16 | 7,723.05 | 10,171.11 | |
Livestock _________________________ | X-X-XX-XX | 215.00 | 53.75 | 161.25 | |
Buildings (field) _________________ | X-X-XX-XX | 22,289.12 | 420.36 | 1,868.76 | |
Office building, garage, and shed _ | X-X-XX-XX | 2,641.04 | 145.20 | 2,495.84 | |
Elevators _________________________ | X-X-XX-XX | 414.96 | 138.06 | 276.90 | |
Shop equipment ____________________ | X-X-XX-XX | 2,429.43 | 239.33 | 2,190.10 | |
Furniture and fixtures ____________ | X-X-XX-XX | 1,894.45 | 230.79 | 1,663.66 | |
Wagons ____________________________ | X-X-XX-XX | 612.00 | 431.33 | 180.67 | |
W. H. supplies ____________________ | 1924 | 2,432.98 | ____________ | 2,432.98 | |
Real estate _______________________ | 1922 | 362.50 | ____________ | 362.50 | |
Patent ____________________________ | 3-1-21 | 15,000.00 | 2,783.49 | 12,216.51 | |
| _________ | __________ | ____________ | __________ | __________ | ___________
Total _______________________ | _________ | 91,281.72 | 28,572.08 | 62,709.64 | $178,000 | $115,290.36
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It is stipulated that included in the above list was property of the depreciated cost of $16,216.51 which had been owned by the partnership for more than two years.
The parties to the proceeding agree that on July 1, 1924, the corporation received all the property listed above and from that date retained continuous possession thereof and operated the business of cementing oil wells theretofore carried on by the partnership. On and after such date all operating contracts were made in the name of the corporation, which then opened a set of books that reflect its income and operations thereafter. At all times after July 12 representatives of the parties of the second part served on the board of directors and as officers of the corporation and participated in all of its corporate acts and proceedings.
The real estate included in the list of partnership assets was transferred to the corporation by deed dated July 1, 1924, but the signatures of Erle P. Halliburton and Vida C. Halliburton affixed thereto were not attested until July 16 and July 23, respectively. The patents and patent rights included in the assets transferred were assigned to the corporation by instruments dated July 1, 1924, but the signatures thereto were not attested until July 23 of such year.
On July 23, 1924, the parties of the second part paid in their subscription on the stock of the corporation in cash in the amount of $130,000.
Immediately after the effective date of the organization of this corporation, Erle P. Halliburton and Vida C. Halliburton owned capital stock of the corporation represented by 1,780 shares of stock issued, or to be issued, for which they had paid in the assets of the...
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