Hilton Hotels v. United States

• Decision Date: 24 January 1968
• Docket Number: No. 65 C 1983.,65 C 1983.
• Citation: 285 F. Supp. 617
• Parties: HILTON HOTELS v. UNITED STATES of America.
• Court: U.S. District Court — Northern District of Illinois

285 F. Supp. 617

HILTON HOTELS v. UNITED STATES of America.

No. 65 C 1983.

United States District Court N. D. Illinois.

January 24, 1968.

Milton A. Levenfeld of Levenfeld, Kantor, Baskes & Lippitz, Chicago, Ill., for plaintiff.

Mitchel Rogovin, Donald Anderson, Robert Sama and Edward Snyder, Washington, D. C., for the United States.

MEMORANDUM OF DECISION

LYNCH, District Judge.

One of the two issues in this case has been settled. Remaining for decision in this case is the plaintiff's claim for deductions for certain legal services accrued in 1954, 1955, and 1956.

The facts concerning the disputed issue are contained in the parties' second stipulation and are adopted by this court as its findings of fact.

It is clear to this court — and taxpayer now concedes in its brief — that the taxpayer is not entitled to a deduction for that portion of the 1956 payment to Standard Research which was for services by Standard Research in determining a fair basis of merger between Waldorf and Hilton. (Paragraphs 14 and 15 of the second stipulation). Expenses incurred in reorganizing or recapitalizing a corporation are not deductible as ordinary and necessary business expenses. General Bancshares Corp. v. C.I.R., 326 F.2d 712 (8th Cir., 1964); Gravois Planing Mill Company v. C.I.R., 299 F.2d 199 (8th Cir., 1962); Missouri-Kansas Pipe Line Co. v. C.I.R., 148 F.2d 460, 462 (3 Cir., 1945).

The only issue therefore is whether those expenses incurred by the taxpayer in connection with the appraisal proceeding are deductible.

In reaching a decision the court must consider the primary purpose of the expenditures involved, and deductibility must not be denied merely because a question of title to property is incidentally involved. Rassenfoss v. C.I.R., 158 F.2d 764 (7th Cir., 1966).

Under Section 91(9) of the New York Stock Corporation Law, McKinney's Consol. Laws, c. 59, the merger became effective when the Certificate of Consolidation was filed in the office of the Secretary of State. Section 91 provides that the objecting shareholders shall have the right to have their stock appraised and paid for in the manner provided, and subject to the conditions imposed by Section 21 of the New York Stock Corporation Law.

Section 21(6) provides:

"Any stockholder demanding payment for his stock shall have no right to receive any dividends or distributions payable to holders of such stock of record after the close of business on the day next preceding the date of the stockholders' vote in favor of the action to which such objection was made, and upon such vote shall cease to have any other rights as a stockholder of the corporation in respect to such stock, except the right to receive payment for the value thereof as in this section provided * * *."

Section 21(7) provides that if the objecting stockholder demands payment as a result of action taken pursuant to Section 91, then:

"* * * the shares or other securities of the resulting or surviving corporation into which the shares of the objecting stockholder would have been converted had no objection been made shall, unless the certificate of merger or consolidation shall otherwise provide, be deemed to have been duly issued in accordance with the terms of such certificate and reacquired by the resulting or surviving corporation, and may be held or disposed of by it free of any preemptive rights of stockholders."

This court agrees with the reasoning expressed in Smith Hotel Enterprises, Inc. v. Nelson, 236 F.Supp. 303 (D.C.E.D. Wisconsin, 1964) wherein Judge Grubb held, in an analogous...