Hougland Packing Co. v. Comm'r of Internal Revenue
| Decision Date | 28 May 1957 |
| Docket Number | Docket No. 42113. |
| Citation | 28 T.C. 519 |
| Parties | HOUGLAND PACKING COMPANY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Sol Goodman, Esq., and M. S. Cassen, Esq., for the petitioner.
R. G. de Quevedo, Esq., and Lyman G. Friedman, Esq., for the respondent.
Held, petitioner is not entitled to excess profits tax relief under section 722(b)(2), (b)(3), or (b)(5), I.R.C. 1939.
This proceeding involves claims for excess profits tax relief under section 722 of the 1939 Internal Revenue Code for the years ended June 30, 1942, 1943, 1944, 1945, and 1946. Petitioner's claims are based on section 722(b)(1), (b) (2), (b)(3), and (b)(5) of the 1939 Code. Also involved are deficiencies in excess profits tax determined by the respondent for the years ended June 30, 1943 and 1944, in the amounts of $27,296.58 and $5,446.94, respectively, by reason of the deferment of payments of such amounts by the petitioner under section 710(a)(5).
Some of the facts have been stipulated and they are hereby incorporated by this reference.
Hougland Packing Company, Inc., hereinafter called the petitioner, was organized under the laws of the State of Indiana on December 24, 1932, with its office and place of business at Franklin, Indiana. Petitioner was the successor of Hougland Packing Company, a partnership formed in 1922. In 1953 the petitioner corporation was dissolved and its assets were distributed to the several stockholders. Authorized capital of the petitioner at incorporation was 1,000 shares of common stock, no par value, which was issued at a value of $100 per share to the partners of the predecessor partnership in the same proportion as their partnership interests. The shares of stock were issued as follows:
+-------------------------------------+
¦ ¦Number of shares ¦
+------------------+------------------¦
¦Isaac R. Hougland ¦94.2 ¦
+------------------+------------------¦
¦Daniel M. Hougland¦234.8 ¦
+------------------+------------------¦
¦Clyde E. Hougland ¦155.1 ¦
+------------------+------------------¦
¦Leland W. Hougland¦155.1 ¦
+------------------+------------------¦
¦Robert F. Hougland¦125.7 ¦
+------------------+------------------¦
¦Frank M. Cravens ¦235.1 ¦
+------------------+------------------¦
¦ ¦1,000.0 ¦
+-------------------------------------+
Petitioner and its predecessor were engaged in the business of canning and packing food products, principally tomatoes and sweet corn. Petitioner obtained its corn and tomatoes by contracting with farmers in petitioner's vicinity for a certain amount of acreage of corn and tomatoes grown by them. This acreage was generally contracted in the early part of the year preceding the growing season. Petitioner was committed to purchase all of the corn and tomatoes on the contracted acreage. Petitioner determined the amount of acreage to be contracted each year by taking the average of what it considered to be its normal production capacity. The area in which petitioner contracted for corn and tomatoes did not exceed a radius of 15 miles from Franklin, Indiana, where petitioner's canning plant was located. Petitioner distributed its canned goods over a geographical area within a radius of approximately 600 miles from Franklin, Indiana.
The contracted price per ton for corn and for tomatoes was the same on all contracts entered into by the petitioner each growing season. Contracts made by the petitioner each year with farmers specified a price per ton. There was one price only in petitioner's contracts for corn, which price was determined by the price of competing crops. There were two prices in the contracts for tomatoes, one price for United States Government grade No. 1's, and another price for United States Government grade No. 2's.
Separate equipment was required in the processing of corn and tomatoes by the petitioner. Petitioner's processing costs per ton for corn and tomatoes differed, with corn being more expensive to process. Petitioner's profits from its corn- and tomato-canning operations were dependent on the size of the annual crop, the price paid for the crop, cost of cans, labor, and other expenses, managerial and selling ability, the available supply, the selling prices for the product, and other factors. Some of the factors affecting the size of the annual crop of corn and tomatoes are moisture, cultivation, temperature, extent of fertilizer used, and the skill of the individual farmer. practices of petitioner's customers. Prior to this period, the predominant practice was to purchase futures, whereby purchases were made before the start of the canning season and delivery was made to the buyers after the products were packed. During the years 1930 through 1934 petitioner's customers gradually changed to the spot-buying method, under which method both the purchase and delivery of the canned products were made after the products had been packed.
Petitioner's capital stock and surplus accounts were as follows during the years indicated:
+----------------------------------------+
¦ ¦ ¦Capital stock ¦Surplus ¦
+----+--------+---------------+----------¦
¦Jan.¦1, 1933 ¦$100,000 ¦$29,090.25¦
+----+--------+---------------+----------¦
¦Dec.¦31, 1933¦100,000 ¦62,698.56 ¦
+----+--------+---------------+----------¦
¦Dec.¦31, 1934¦100,000 ¦87,023.13 ¦
+----+--------+---------------+----------¦
¦Dec.¦31, 1935¦100,000 ¦149,725.51¦
+----+--------+---------------+----------¦
¦Dec.¦31, 1936¦100,000 ¦101,548.04¦
+----+--------+---------------+----------¦
¦Dec.¦31, 1937¦100,000 ¦105,013.68¦
+----+--------+---------------+----------¦
¦Dec.¦31. 1938¦100,000 ¦103,306.32¦
+----+--------+---------------+----------¦
¦Dec.¦31, 1939¦100,000 ¦104,667.85¦
+----------------------------------------+
Petitioner, since its organization, has kept its books and filed its Federal income and excess profits tax returns on the accrual method of accounting. Up to the end of 1939 its accounting period was the calendar year. It filed Federal income and excess profits tax returns for the 6-month period ended June 30, 1940, and as of that date changed its accounting period to a fiscal year ending June 30. Petitioner filed income and declared value excess-profits tax returns and excess profits tax returns for the period January 1, 1940, to june 30, 1940, and for the years ended June 30, 1941, 1942, 1943, 1944, 1945, and 1946, with the then collector of internal revenue for the district of Indiana at Indianapolis, Indiana.
Petitioner's balance sheets at the date of incorporation and at the end of each year from 1933 through 1239 were as shown on the following page:
Corn acreage contracted, tonnage purchased, total cost, cases packed, and number of cans per ton packed by petitioner and its predecessor for the years 1922 to 1939 were as follows:
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