Houck v. Hinds, 4797.
| Decision Date | 08 October 1954 |
| Docket Number | No. 4797.,4797. |
| Citation | 215 F.2d 673 |
| Parties | George C. HOUCK, Jr., Appellant, v. H. I. HINDS, Individually and as Collector of Internal Revenue, Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
James D. Fellers, Graham Loving, Jr., Oklahoma City, Okl. (Mosteller, Fellers, Andrews & Loving, Oklahoma City, Okl., were with them on the brief), for appellant.
Ellis N. Slack, Sp. Asst. to the Atty. Gen. (H. Brian Holland, Asst. Atty. Gen., George F. Lynch, Sp. Asst. to the Atty. Gen., Fred M. Mock, U. S. Atty., and Leonard L. Ralston, Asst. U. S. Atty., Oklahoma City, Okl., were with him on the brief), for appellee.
Before BRATTON, HUXMAN and MURRAH, Circuit Judges.
This is an income tax case. In his return for the year 1946, George C. Houck, Jr., hereinafter referred to as the taxpayer, treated as capital gain the amount of $1,250 received from a corporation in which he was a shareholder. The Commissioner of Internal Revenue determined that the amount thus received should be treated as a dividend distribution made by the corporation. A deficiency in tax resulted. The deficiency was paid, a claim for refund was seasonably lodged, no action was taken on the claim within six months after the date of its filing, and the suit was instituted against the Collector of Internal Revenue to recover a refund, together with interest. Liability was denied.
The trial court found these facts. Beginning about May 31, 1943, the taxpayer became a partner in a paint manufacturing and distributing business in Tulsa, Oklahoma, operating under the name of Allied Paint Company, a limited partnership. The names of the partners and their respective interests were Ainslie Perrault, 55 per cent; Raymond M. Gunn, 17½ per cent; Arthur T. Saunders, 12½ per cent; Robert E. Stanford, 12½ per cent; and George C. Houck, Jr., 2½ per cent. Perrault was a general partner and the others were limited partners. On September 21, 1946, L. Karlton Mosteller, a partner in the firm of Mosteller & McElroy, engaged in the practice of law at Oklahoma City, organized Allied Paint Manufacturing Company under the laws of Delaware. On September 24, the incorporators of the corporation held a meeting in the offices of the law firm at which time Mosteller and his associates, George H. McElroy, and Richard G. Taft, were elected directors. On October 1, the first meeting of the directors was held in the offices of the law firm. Mosteller was elected president, McElroy vice-president, and Taft secretary-treasurer of the corporation; by-laws were adopted; and the form of stock certificates was approved. At such meeting, Mosteller subscribed for the entire authorized capital stock of 10,000 shares at $5 par value per share, paid into the corporation $1,000 for 200 shares, and executed an agreement to purchase the remaining 9,800 shares in the amount of $49,000. And at such meeting, Mosteller announced that he had completed negotiations for the purchase by the corporation of the assets of the partnership for the price of $582,773.54. That was not in excess of the fair market value of the assets. The book value of the assets as of September 30 was $325,584.55. In accordance with Mosteller's announced negotiations for the purchase of the assets of the partnership, a bill of sale was executed on October 1 between the partners as vendors and the corporation as vendee. The part of the bill of sale concerning payment provided that the vendee promised to pay a total consideration of $582,773.54, of which $50,000 should be paid on December 31, 1946, and the balance should be paid in ten equal annual installments on January 2 of each of the years 1948 to 1957, inclusive, the corporation having simultaneously with the execution of the bill of sale delivered to the vendors its notes evidencing its promises to pay such consideration totalling the sum of $582,773.54 at the times and in the manner therein provided, and the vendors thereby acknowledging receipt of such notes. The corporation executed such notes to the several partners as follows:
10-Year
Notes Due Installment Total
12-31-46 Notes
Ainslee Perrault $27,500 $293,025.45 $320,525.45
Raym ond M. Gunn 8,750 93,235.37 101,985.37
Arthur T. Saunders 6,250 66,596.69 72,846.69
Robert E. Stanford 6,250 66,596.69 72,846.69
George C. Houck, Jr. 1,250 13,319.34 14,569.34
________ ___________ ____________
$50,000 $532,773.54 $582,773.54
The notes due December 31, 1946, did not bear interest. The installment notes bore interest at the rate of three per cent per annum from December 31, 1946. To secure the installment note payable to Perrault, the corporation agreed to and did on October 1, execute a combination real estate and chattel mortgage covering all of its newly acquired assets; and at the same time it was agreed that the corporation would, not later than one year thereafter, purchase and maintain a policy or policies of life insurance of not less than $125,000 on the life of Perrault and pledge such policy or policies as collateral security for the payment of his installment note. Mosteller's principal purpose in entering into such transaction was, with Perrault handling the negotiations and finding a purchaser, to sell the corporate assets or his stock in the corporation at a profit. Perrault was to be paid an undisclosed commission for arranging the prospective sale. The transaction was entered into bona fide between the parties for legitimate business purposes; and from October 1 to October 18, 1946, Mosteller had complete control of the corporation through his ownership of all issued stock and his subscription agreement for the balance...
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