Idol v. Comm'r of Internal Revenue, Docket Nos. 87888
| Decision Date | 27 June 1962 |
| Docket Number | Docket Nos. 87888,87889. |
| Citation | 38 T.C. 444 |
| Parties | EDGAR S. IDOL AND KATHERINE G. IDOL, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.SPEEDWAY TRANSPORTS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Owen T. Armstrong, Esq., Henry C. Lowenhaupt, Esq., and Richard D. FitzGibbon, Jr., Esq., for the petitioners.
Robert A. Roberts, Esq., for the respondent.
1. Payments made by petitioner Speedway Transports, Inc., to petitioner Edgar S. Idol during 1956 and 1957 constitute dividend distributions.
2. The purported reacquisition of stock by Speedway in exchange for certain assets (an operating franchise and 15 pieces of equipment) during 1957 constituted a sale of assets.
3. Petitioner Edgar S. Idol's receipt of $40,000 on May 1, 1957, constituted a dividend distribution to him by Speedway.
The respondent determined deficiencies in petitioners' income tax for the years and in the amounts as follows:
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¦Docket¦Petitioner ¦Year ¦Deficiency¦
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¦87888 ¦Edgar S. Idol and Katherine G. Idol¦( 1956¦$6,130.77 ¦
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¦ ¦ ¦( 1957¦45,401.80 ¦
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¦ ¦ ¦ ¦ ¦
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¦87889 ¦Speedway Transports,Inc ¦( 1955¦2,110.17 ¦
+------+-----------------------------------+------+----------¦
¦ ¦ ¦( 1957¦10,110.43 ¦
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The issues presented for our decision are the correctness of the respondent's action in determining (1) that payments made by petitioner Speedway Transports, Inc., to petitioner Edgar S. Idol during 1956 and 1957 constitute dividend distributions; (2) that the disposition of certain assets by petitioner Speedway Transports, Inc., to Cassens Transport Company during 1957 resulted in the realization of capital gain; and (3) that petitioner Edgar S. Idol received a dividend distribution in the amount of $40,000 in 1957 in connection with the disposition of 32 shares of Speedway Transports' stock and the acquisition by Cassens Transport Company of certain assets from Speedway Transports, Inc.
Additional issues presented by the pleadings have been disposed of by concession of the parties.
All of the stipulated facts are so found.
Petitioner Edgar S. Idol and Katherine G. Idol are husband and wife residing in St. Louis County, Missouri. They filed joint Federal income tax returns for the years 1956 and 1957 with the director of internal revenue at St. Louis, Missouri.
Speedway Transports, Inc., sometimes hereinafter referred to as Speedway or the corporation, is a corporation organized under the laws of the State of Missouri. It filed Federal income tax returns for 1955, 1956, and 1957 with the director at St. Louis, Missouri.
Since its incorporation in 1941 and at all times here material, Speedway has been engaged in the business of transporting automobiles in interstate commerce by means of truck carriers, operating under operating rights granted by the Interstate Commerce Commission.
The outstanding stock of Speedway Transports, Inc., was owned by H. M. Florman who had acquired ownership thereof many years prior to 1953. Florman was engaged in the interstate automobile transport business through his ownership and control of at least two corporations, Associated Transports, Inc., and Speedway.
At all times here material the Interstate Commerce Act made it unlawful for any person having control of two or more carriers to acquire control of another carrier through stock ownership or otherwise except with the approval of the Interstate Commerce Commission. (49 U.S.C. sec. 5(2)(i) and (4) 1958 ed.).)
On or about September 23, 1953, Florman and Idol executed a contract whereby Idol agreed to purchase from Florman all of the capital stock of Speedway for $10,000 plus the net worth of the company as of September 30, 1953, such amount to be determined by audit by certified public accountants. The net worth of Speedway as of September 30, 1953, on November 16, 1953, was determined to be $89,857.65.
The contract executed by Idol and Florman on September 23, 1953, was as follows:
PURCHASE CONTRACT
THIS AGREEMENT, made and entered into this 23 day of Sept., 1953, by and between H. M. FLORMAN, hereinafter called ‘Vendor’, and EDGAR S. IDOL, hereinafter called ‘Vendee’, WITNESSETH:
1. Vendor hereby sells to Vendee all of the capital stock of SPEEDWAY TRANSPORTS, INC., a Missouri corporation, St. Louis, Missouri, for the sum of $10,000.00 plus an amount equivalent to the net worth of the said company, said net worth to be determined as of September 30, 1953, by an audit of the company's books by Cornell & Company, certified public accountants.
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¦2.¦Vendee agrees to pay the said purchase price as follows: ¦
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¦ ¦$5,000.00 upon receipt of the audited statement of net worth; ¦
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¦ ¦$5,000.oo on December 20, 1953; ¦
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¦ ¦$9,000.00 on December 20, 1954; ¦
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¦ ¦$9,000.00 on December 20, 1955; ¦
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¦ ¦$9,000.00 on December 20, 1956; ¦
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¦ ¦$9,000.00 on December 20, 1957; ¦
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¦ ¦$9,000.00 on December 20, 1958; ¦
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¦ ¦$9,000.00 on December 20, 1959; ¦
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¦ ¦$9,000.00 on December 20, 1960; ¦
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¦ ¦$9,000.00 on December 20, 1961; ¦
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¦ ¦$9,000.00 on December 20, 1962; and the balance of the total purchase ¦
¦ ¦price on December 20, 1963. ¦
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All payments agreed to be made shall be evidenced by a collateral installment payment promissory note dated September 30, 1953 and bearing interest at the rate of three percent (3%) per annum.
3. Vendee agrees that no further transfer or bulk sale of the business or assets of SPEEDWAY TRANSPORTS, INC., or of the stock of the company will be made without sixty (60) days prior notice to Vendor and the opportunity to him to repurchase, or require transfer to his nominee, at the same price and upon the same terms as may have been agreed upon for a proposed sale or transfer.
4. In the event of a sale of SPEEDWAY'S business or its stock prior to the expiration of the term of this Purchase Contract, after due notice of said sale or transfer to Vendor under the terms of the preceding paragraph, Vendee's obligations hereunder shall be considered to have been fully discharged by payments to Vendor equivalent to:
(a) The net worth of SPEEDWAY TRANSPORTS, INC. of Missouri, on September 30, 1953, plus seventy-five percent (75%) of the net earnings after taxes of SPEEDWAY TRANSPORTS, INC., to date of resale; or
(b) Seventy-Five percent (75%) of the resale price, whichever is the greater.
5. In the event a sale is arranged and consummated under the provisions of paragraph 4, Vendor shall be entitled to demand and receive total payments equivalent to the greatest sum provided for in paragraph 4, even though such total payments exceed Vendee's total indebtedness under the terms of paragraph 1.
6. In the event of:
(a) Operation of SPEEDWAY'S business at a loss for a period of more than six (6) months, resulting in an accumulated deficit in net earnings from the effective date hereof; or
(b) Failure by Vendee to make payments as they fall due under paragraph 2; or
(c) The death or disability of Vendee;
Vendor may, at his option, require transfer of Vendee's stock to his nominee at a price equivalent to the balance then due Vendor under this Purchase Agreement, plus the sum of any contributions to capital or surplus of SPEEDWAY made by its stockholders subsequent to the date of this agreement, plus twenty-five percent (25%) of any accumulated net profits not theretofore paid out as dividends.
Vendee agrees to furnish Vendor with a financial statement of SPEEDWAY TRANSPORTS, INC. each quarter and to cause an annual audit to be made by a certified public accountant and furnish Vendor with a copy thereof during the term hereof.
7. Vendee warrants that he will not without the written consent of Vendor, prior to completion of this Contract, cause or permit the withdrawal of SPEEDWAY'S corporate assets through excessive salary payments, declaration of dividends, or any other device, to an extent which will unduly impair the value of securities deposited in...
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